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Tuesday, 31 May 2011

Funds That Are Avoiding Commodities

David Kathman, CFA

As the world economy moves forward in fits and starts, commodity prices have continued to be among the most closely watched economic indicators. For most of the past year, commodity prices have been on the rise, thanks to anticipated demand from emerging markets and a desire to hedge against inflation and the falling dollar. In recent weeks, though, they've pulled back significantly due to various factors, notably the European sovereign debt crisis and concerns that developing markets such as China may not grow as fast as expected. This pullback has contributed to short-term declines in the broader market, but it could be good news for the U.S. economy, because high oil prices have started to crimp the budgets of drivers, potentially slowing the recovery.

Given the runup in commodities and commodity-related stocks over the past year, they've been popular with many mutual fund managers. A couple of weeks ago, we took a look at some good diversified funds with above-average commodity exposure relative to their peers. On the other side of the coin are fund managers who have avoided commodities, either for strategic reasons or because they think prices have become stretched and there are better opportunities elsewhere in the market. It's no surprise that funds specializing in sectors such as financials or technology don't own commodity-related stocks, but there's no shortage of diversified funds, including some run by smart managers with very good track records, that are mostly steering clear of commodities.

To broaden the scope a bit, we looked at funds with the least exposure to basic materials, energy, and industrial stocks. The following table shows the 10 funds in the nine Morningstar Style Box categories with the lowest combined percentage of their most recent portfolio in those three sectors. We've left out index funds and those with less than $100 million in assets and show each fund's percentile ranking in its category for the year to date and the trailing three years, both as of May 26.

Click here to view the table.

This is a fairly eclectic group of funds, in categories ranging from small growth to large value. Thus, it's significant that most of them (with a few notable exceptions) have great three-year returns, ranking near the top of their categories, but terrible returns so far in 2011, ranking near the bottom. The lack of exposure to commodities or commodity-related stocks is undoubtedly a factor in this poor recent performance, given how hot those areas have been. Beyond that, though, these funds differ quite a bit in what they do own.

Seven of the 10 funds on the list are growth funds, and several of them are big technology fans. Needham Aggressive Growth (NASDAQ:NEAGX - News), Needham Small Cap Growth (NASDAQ:NESGX - News), and Needham Growth (NASDAQ:NEEGX - News) all have more than half their assets in technology, with the first two having tech weightings above 70%. While some tech stocks have done well this year, the sector as a whole has been lackluster, and those big tech weightings have contributed to the Needham funds' terrible recent relative results.

On the other hand, FBR Focus (NASDAQ:FBRVX - News) and Akre Focus (NASDAQ:AKRIX - News) have also struggled recently, despite having essentially no tech exposure. (The latter fund is run by Chuck Akre, who managed FBR Focus until leaving in 2009 to start his own firm.) These funds invest in quality growth stocks with high returns on capital, and their portfolios are currently dominated by consumer cyclical and financial stocks that should do well in a periods of slow growth. That hasn't been a good place to be for most of 2011, so the funds have lagged, though FBR Focus has an excellent long-term track record.

Finally, there are the three value funds on the list, all of them concentrated contrarian funds with great long-term records. Yacktman (NASDAQ:YACKX - News) and Yacktman Focused (NASDAQ:YAFFX - News), run by father-and-son team Don and Stephen Yacktman and Jason Subotky, hold stocks the managers consider cheap, mostly (but not exclusively) profitable, high-quality ones. These funds have often gone through stretches of underperformance in the past, but they've done very well this year despite their lack of commodity exposure, thanks to diversified portfolios that are heaviest in consumer-oriented stocks.

It's a very different story for the $18 billion Fairholme (NASDAQ:FAIRX - News) fund, run by former Morningstar Domestic-Stock Fund Manager of the Year (and Fund Manager of the Decade) Bruce Berkowitz. It has consistently been one of the best-performing large-value funds over the past decade, thanks to Berkowitz's boldly contrarian style, but in 2011 it has badly lagged its peers. As Kevin McDevitt explained in this recent video report, Fairholme's terrible 2011 results have come mainly from its financial holdings, which make up 90% of the fund's equity exposure and include such recent laggards as AIG (NYSE:AIG - News). Such periods of underperformance are an inevitable hazard for concentrated funds like Fairholme, and it's surprising that Berkowitz has managed to avoid them for so long.

Avoiding commodities has generally not been a good move this year, though some funds (including the Yacktman funds and Fidelity OTC (NASDAQ:FOCPX - News)) have been able to put up topnotch returns anyway. If commodity prices continue to fall, as they've started to do (and as they did in the second half of 2008 after a similar runup), then a lack of exposure could turn into a net positive. In any case, it's not a good idea to worry too much about such short-term issues when evaluating funds; the really good ones are worth owning despite the occasional bumps in the road.

David Kathman, CFA does not own shares in any of the securities mentioned above.

'My Biggest Money Mistake'

Everybody has messed up at some point. These folks share their biggest goofs, but are now on the right path.

Bought a Vacation Home as an Investment

Christine Flood, 37
Software engineer
Denver, Colorado

"I have been in the rental market since I was in college and thought owning a ski condo would be a good idea. What I didn't know is that vacation rentals are a whole new beast that I didn't understand.

The operational costs differ greatly -- for example, you need to hire a management company for guest services and housekeeping. That's 30% to 50% of your gross rents. And my vacation home is now worth $30,000 less than when I bought it."

My fix: "My dad told me vacation homes are a rich man's game -- I should have believed him. When the market turns around, I am going to sell this baby as quickly as possible and settle with a traditional rental."

Kept Too Much Money in Employer's Stock

Daniel C., 52
Engineer and consultant
Glen Ellyn, Illinois

"I had over 10% of my net worth in a single equity -- my employer's stock, and held on to it even when the market went south. I held on to it out of sentiment because it was my own company. In 2010, $50,000 worth of stock turned into a $27,000 tax loss."

My fix: "I know not to invest with sentimentality, and I pay more attention to my portfolio."

Trusted a Pro's Picks and Ignored Fund Fees

Phyllis Goodman, 63
Fort Worth, Texas

"After retiring, I rolled my 401(k) over to the company that had serviced my insurance needs for more than 30 years and blindly took the agent's recommendations without researching management fees or the funds. I lost money and was charged a great deal."

My fix: "I withdrew the money, started doing research on my own, and invested at Vanguard and T. Rowe Price. I manage my own accounts, insist on diversity, and do everything I can to stay up to date."

Too Risk-Averse for My Age

Sin Hang Lai, 33
Project manager
Cos Cob, Connecticut

"When I quit my job in 2002, I converted my 401(k) into a IRA at a brokerage and left it in cash for the next seven years. I wish I had invested that money during the strong post-dotcom recovery. It wasn't until after 2008 that I thought about what to do with my savings, and then I stupidly tried to trade and lost money."

My fix: "I regret not having a personal finance education, either formally or through friends and family, so now I read, observe, and carefully manage my own money. I've opened a Roth IRA and an individual account I play with -- I let myself get creative with that account."

Courtesy: Paul Jarvis

Put Short-Term Savings into Growth Stocks

Paul Jarvis, 29
Money manager
Fargo, North Dakota

"I was 16 when my father passed away nearly 15 years ago. I inherited the house and a life insurance policy, which combined would have been enough for college and hopefully a payment. I followed my broker's advice and invested the life insurance money in a growth portfolio. The market dropped substantially over the next year, and while it eventually came up, I needed the money for tuition and couldn't afford market fluctuations."

My fix: "I think about my short-term needs and balance that with long-term money, which can take additional risk. I rebalance my portfolio in large market declines, as well as cut extraneous expenses and save aggressively."

Models, actresses get up to $8,000 an hour

RATES for social escort services vary greatly.

The New Paper on Sunday spoke to 22 agencies offering such services here and found that rates range from $200 to $2,000 an hour for escort services only.

Any additional charges, such as a discreet encounter, is charged separately.

Bigger players such as Social Escort Singapore and Singapore Exquisite Social Escort Services typically charge higher rates, from $1,000 an hour.

Fees for mid-range players start from $500 an hour, while the rest can go as low as $200.

Naturally, much depends on the "quality" of the girls offered - models and flight attendants typically command higher rates.

The owner of Singapore Model Escorts, who wanted to be known only as William, said that the most expensive booking it had was a $25,000 three-day trip to Maldives.

"It's about exclusiveness," he added.

Trips to Bali

But overseas assignments for social escorts are not common, he said.

Mr Prince Wong, owner of Singapore Escort Services, said his company arranges overseas trips in South-east Asia, "usually in Bali, because it's easy to get the visa and no one knows them and it's also a more romantic location".

Claiming his company offers "starlets and actresses", he added: "No one there would recognise an Asian actress, just like how you would not recognise a top-notch Indonesian businessman."

Clients willing to pay top dollar are usually professionals, elite businessmen and young entrepreneurs in their late 20s who have successful companies, he said.

"(But) the majority of our clients are lawyers and bankers," he added.

William pointed out how his agency charged "easily $25,000 for a few nights".

"It sounds crazy...but there are people who are happy to pay such prices."

Mr Wong, who claims that his agency works with top Asian models and actresses from Hong Kong and Taiwan, said prices can go up to $8,000 an hour.

The owner of Velvet 6 Management, who wanted to be known only as Bob, said there's no standard rate for escort services.

If anything, the prices only serve as a deterrent for those who can't afford it, he said.

Bob added: "Those who can afford will still call up."

He also said that perception of "class" is in the client's mind.

Bob, whose company has been in business for five years, charges $450 per hour for companionship to events, with an additional $250 for each subsequent hour.

While Mr Wong works with escorts from an international background, William chooses his from among women here.

He said: "We chose girls based on their CV (curriculum vitae).

"For example, if they were cover girls on popular men's magazines, then they command a higher price."

Other attributes include clear clean skin, clean straight teeth, a nice smile and a friendly personality.

Agency owners we spoke to said the girls usually approach them to be a social escort.

Mr Wong said: "They apply, we don't advertise, except on our website."

Out of the total amount that a social escort makes, the agency takes a cut of 35 per cent to 40 per cent.

Bob said: "Other companies have a 60-40 arrangement, where the agency takes 40 per cent of the takings. But we take only 35 per cent due to competition."

As to what the services entail, Bob said that the escorts are expected to provide companionship and converse with the client.

Sometimes, they might have to accompany the client to a room too.

"But what they do after that is none of my business. Nobody forces anybody into a room," Bob stressed.

Despite the big bucks, not all escorts stay on.

He said: "It is a rolling parade. The people we have need the money such as they face financial difficulties or want to help their families out.

"So when they have paid off their debts, they just drop off."

Food prices 'will double by 2030', Oxfam warns

The prices of staple foods will more than double in 20 years unless world leaders take action to reform the global food system, Oxfam has warned.

By 2030, the average cost of key crops will increase by between 120% and 180%, the charity forecasts.

Half of that increase will be caused by climate change, Oxfam predicts, in its report Growing a Better Future.

It calls on world leaders to improve regulation of food markets and invest in a global climate fund.

"The food system must be overhauled if we are to overcome the increasingly pressing challenges of climate change, spiralling food prices and the scarcity of land, water and energy," said Barbara Stocking, Oxfam's chief executive.
Women and children

In its report, Oxfam highlights four "food insecurity hotspots", areas which are already struggling to feed their citizens.

in Guatemala, 865,000 people are at risk of food insecurity, due to a lack of state investment in smallholder farmers, who are highly dependent on imported food, the charity says.

in India, people spend more than twice the proportion of their income on food than UK residents - paying the equivalent of £10 for a litre of milk and £6 for a kilo of rice.

in Azerbaijan, wheat production fell 33% last year due to poor weather, forcing the country to import grains from Russia and Kazakhstan. Food prices were 20% higher in December 2010 than the same month in 2009.

in East Africa, eight million people currently face chronic food shortages due to drought, with women and children among the hardest hit.

The World Bank has also warned that rising food prices are pushing millions of people into extreme poverty.

In April, it said food prices were 36% above levels of a year ago, driven by problems in the Middle East and North Africa.

Oxfam wants nations to agree new rules to govern food markets, to ensure the poor do not go hungry.

It said world leaders must:

increase transparency in commodities markets and regulate futures markets
scale up food reserves
end policies promoting biofuels
invest in smallholder farmers, especially women

"We are sleepwalking towards an avoidable age of crisis," said Ms Stocking.

"One in seven people on the planet go hungry every day despite the fact that the world is capable of feeding everyone."

Among the many factors driving rising food prices in the coming decades, Oxfam predicts that climate change will have the most serious impact.

Ahead of the UN climate summit in South Africa in December, it calls on world leaders to launch a global climate fund, "so that people can protect themselves from the impacts of climate change and are better equipped to grow the food they need".

Sunday, 29 May 2011

Should you start a business right out of college?

Most new grads have no money and little, if any, real-world experience. Even so, launching a startup may be less crazy than it sounds.

By Anne Fisher, contributor

FORTUNE -- Dear Annie: I'm a brand new college graduate and, although I have one job offer from a big company (after interviewing with many), I'd really rather work for myself. For the past couple of years, I've been earning "mad money" by selling handmade jewelry online, and it's been going well enough that I think it would really take off if I do it full-time.

On the plus side, I have no student loans to pay off and my expenses are minimal because I can live with my parents while I build the business. On the other hand, my mom and dad are urging me to take the "real job" because, according to them, starting a business right out of school is crazy. What do you and your readers think? — Mary Ann

Dear Mary Ann: Far be it from me to contradict your parents, particularly since they're evidently trying to spare you what could be a painful disappointment.

"The Mark Zuckerbergs of the world make startups look easy, but the cold hard facts are that 9 out of 10 new businesses fail in the first five years," notes Carol Roth, a Chicago-based business strategist who has helped her startup clients raise over $1 billion in capital. Roth also wrote a New York Times bestseller, The Entrepreneur Equation: Evaluating the Realities, Risks and Rewards of Having Your Own Business.

Before you make up your mind about which way to go, Roth says, take a hard, honest look at your motivation for starting a company. Too many entrepreneurial wannabes of all ages (not just new grads) are "looking to get rich, escape the corporate grind, and work shorter hours with more free time," she observes.

None of those reasons is likely to lead to success. What will? Says Roth, "If you're focused on solving a customer problem or need, believe you can do what you do better than anyone else, and you're dying to work long hours, wear many hats, and juggle endless responsibilities, you have the right startup mindset."

According to Susan Spencer, you also need certain personality traits. One of them is a willingness to work very hard all by yourself, at least for the first year or so (and possibly longer).

An attorney and former general manager and part owner of the Philadelphia Eagles, Spencer also launched two thriving businesses and wrote a book called Briefcase Essentials. "Many young entrepreneurs fail because they take on employees, which means overhead, too quickly. The less financial pressure you put on yourself at the outset, the more likely you are to succeed," she says.

The downside: "Doing everything yourself -- selling, keeping the books, paying the bills, and so on -- for 10 or more hours a day is a lonely existence, and it takes extraordinary drive and determination. It's not for everyone."

With that in mind, are you sure you want to leap in head first? If not, Carol Roth has a suggestion that might please both you and your folks: Get a job in the industry where you eventually want to establish your business as a way to learn "how to manage vendor relationships, market your product, deal with customers, and keep detailed books."

While you're soaking up all that real-world knowledge, you can continue to sell jewelry online in your spare time, doing what Roth calls a "jobbie" -- a cross between a hobby and a job -- that "lets you explore how viable it really is while getting paid by someone else."

If, however, you're determined to start your own business right now, without easing into it by getting more experience first, you'd be smart to reach out to a network of fellow fledgling business owners for advice and support. Roth recommends a nationwide group called the Young Entrepreneur Council, which "offers good tools for recent grads looking to create a startup."

You can also seek out more seasoned mentors, Susan Spencer says. "Find a few successful entrepreneurs to be your informal advisory board," she suggests. "They can be a great sounding board for your ideas. They can also help your business grow faster by, for instance, introducing you to bankers."

Spencer points out that this very early stage in your career could be a good moment to start a business, for a couple of reasons. First, your tolerance for risk is greater now than it may ever be again (especially given that you have no student loans and minimal living expenses).

"Before you take on responsibilities like a mortgage and kids, give this your best shot," she says. "As long as you're going into it with your eyes wide open, you are unlikely to regret it."

That's partly because having run your own show "can be a stepping stone to a great job if you decide to change direction later on and go to work for someone else," Spencer notes.

"I've always hired people who had started their own companies. It gives you a kind of business education that you can't get in any other way."

Thursday, 26 May 2011

At which point does it become a bad move to work for Goldman Sachs?

Sarah Butcher

If you’re alert to the media, you will be aware that Goldman Sachs is not getting a good press.

First, there was a recent article blaming it for the food crisis. And then there was another article by the Rolling Stone journalist Matt Taibbi who first concocted the ‘Vampire Squid’ moniker, calling for criminal charges to be brought against Goldman Sachs. More recently, there’s been something accusing it of involvement in ’death derivatives’ and then the Financial Times cites Carl Levin, chairman of the Senate investigative subcommittee, as saying there’s “real hope” law enforcement authorities will act on his panel’s report accusing Goldman Sachs of misleading investors and Congress.

All of this has been seized upon by the public at large. On Twitter, Goldman is regularly vilified as the source of much that’s wrong in the world.

Does any of this matter if you intend to join Goldman Sachs as an employee?

It's inadvisable if…

1) You care about the share price and think it will fall further

This year, Goldman allegedly paid around 80% of its UK bonuses in cash – even for its MDs. However, it also hands out restricted stock, particularly to senior staff and executives.

US analyst Dick Bove thinks Goldman’s stock will keep falling as pressure to bring claims against the firm increases. It’s currently down 11% on January. This is bad news if the stock component of compensation is important to you but not if you’re on a high salary and are being paid cash.

2) You want to be seen to be doing good

Generation Y allegedly want to give back to society in their careers. Goldman Sachs does allow for this: its website extols its community teamworks programme, it promotes entrepreneurialism among women in developing countries, and has helped create a 735,000 acre nature reserve in Chile.

Despite this, if you work at Goldman you will probably need to engage in arduous discussions if you want to argue the firm’s good intentions.

More common than praise for the firm’s environmental stewardship is this kind of comment from Twitter:

“A girlfriend just boasted about reaching a senior position at Goldman Sachs. I don’t know she can think that’s a good thing.”

3) You think Goldman’s wider reputation will impact its ability to do business

Earlier this year, it looked like reputational issues could possibly be taking their toll as Goldman slipped to 10th in US M&A rankings. As of today, however, it’s back to the top position globally.

Less promisingly, the firm appears to be losing market share in fixed income and equities trading, where revenues were down 28% and 7% respectively year on year in the first quarter, versus smaller declines at the likes of JPMorgan and Deutsche.

However, Goldman has argued that some revenue redistribution is inevitable given the abnormal conditions of Q10. And markets revenues declined more precipitously still at Citigroup and BAML.

4) You are extremely paranoid

Could public dislike of Goldman spill over from the internet?

There were unconfirmed suggestions last year that Goldman bankers had been advised not to gather in large groups in public. In 2009 it was suggested that Lloyd Blankfein had advised employees not to engage in conspicuous consumption and there was a spurious report that some US employees had begun carrying guns.

It's advisable if…

1) You want to get paid

Goldman pays the most, period. There are unconfirmed rumours of a very few partners in London on salaries of £1m. No competing bank comes close.

In the first quarter this year, compensation accrued per head was $148k, versus $124k at JPMorgan, $121k at UBS and $133k at Credit Suisse.

“Recruitment at Goldman Sachs is ultimately driven by the idea that if you want to earn the most and you’re any good, you’ll choose to work for Goldman,” says one recent former senior employee. “Some partners have had their base comp trebled in the past few years,” he adds.

2) You want to join a leading multinational firm out of university and to develop your career there

Goldman Sachs relies upon growing its own.

“It’s all about hiring people out of university and growing them gradually,” says the former employee. “Lateral hiring, does happen but rarely.”

Goldman recruiters reportedly pay a lot of attention to the results to the Universum survey, which shows where students want to work. This year it came 10th in the UK, below Apple, Google, HSBC, PWC, KPMG, the BBC, Microsoft, JPMorgan and the Bank of England.

“As long as they can attract the brightest 3% of smart you things who are that driven that they want to work there, or that interested in the money, they can probably ignore the bad press,” the ex-employee adds.

3) You want to work for one of the best

Goldman is still one of the top banks in most of the markets it operates in. In the first quarter, its fixed income revenues were exceeded by both JPMorgan and Deutsche and JPMorgan beat it in M&A and DCM, but all other rivals lagged behind.

4) You really don’t care what anyone else thinks

Headhunters say most candidates are impervious to the bad press.

“It’s still the call, the one,” says the managing director of one search boutique with links to Goldman. “This is all more press than reality.”

“What matters at Goldman Sachs is executing, delivering to clients and making money. That is the attractor of staff and that’s what they believe in,” alleges the ex-employee. “What happens on social media is just a lot of chit chat.”

Wednesday, 25 May 2011

3 Keys to a Richer Retirement

by Larry Katz

How to handle market declines early in your golden years.

Stock prices are up substantially from their March 2009 lows, but there is always the possibility that markets will retrench. What will happen if stocks tumble soon after you retire?

Let's use an example of two unrelated individuals, Sue and Joe. Each one has $1 million and retires at the age of 65 with a portfolio comprised of 50% global stocks and 50% bonds. Each plans on withdrawing an initial $50,000 (5% of beginning portfolio value) and will increase this amount with inflation each year. Each expects to live to 100. They retire at different times.

Sue's portfolio supported her as she planned for 35 years, with enough money left so she could leave a large legacy. Joe, on the other hand, ran out of money prematurely.

Why the difference? It's all due to the randomness of returns in retirement.

Sue was fortunate enough that, in the first few years of her retirement, her portfolio earned relatively high returns net of inflation. Joe wasn't so lucky. His portfolio's returns were negative (after inflation) in the first few years of his retirement.


While we can't predict the future, we can use something called "bootstrapping" to analyze the impact of different sequences of returns on a portfolio. Bootstrapping, as we use it, starts with the returns for a portfolio similar to the one we recommend to our clients, for the 41-year period between 1970 and 2010.

To estimate a possible range of future returns, we then construct 41 hypothetical scenarios, each assuming that retirement began in a year from 1970 to 2010. We calculate all subsequent returns through 2010, then loop back to 1970 and the years following. While these 41 scenarios don't indicate future performance, they give us a reasonable range of outcomes to consider.

For each scenario, we use the Consumer Price Index (measured for the 12 months ending the previous December) to increase distributions annually.

Consider three separate examples:

Scenario 1: Sue retired in 2009. The first year, her portfolio returned 20.2%, inflation was 2.7%, for a real return of 17.5%. The second year of reitrement, the portfolio gained 13.5%, or 12% after inflation. Thirty-five years after retirement, Sue can expect her $1 million starting portfolio to be worth $8.1 million.

Scenario 2: Joe retired in 2007. In his first year, stocks gained 6.3% and inflation was 4.1%, leaving 2.2% as a real return. The second year was worse, with the portfolio losing 16.4% after inflation. The hits put Joe at a disadvantage, and at his withdrawal rate he can expect to run out of money in 29 years.

Scenario 3: Similarly, someone who retired in 1973 would have experienced a 6.8% loss in the first year, but with 8.7% inflation the real return would have been minus 15.5%. In the second year, the after-inflation return would have been negative 20.6%. Against those odds, the retiree would run out of money in 33 years.


In retirement, positive returns increase the size of the portfolio, while negative returns and distributions make it smaller. As a general guide, we believe that portfolios can generally sustain a 4% initial distribution, increasing by the rate of inflation each year.

Sue and Joe each started taking out a more aggressive 5%. Sue's portfolio (Scenario 1) benefited from high returns and low inflation in the first two years of her retirement, and that decreased the distribution rate to a more sustainable level over time. Her portfolio eventually generated returns in excess of distributions, leading to good growth.

Let's look at two possible scenarios for Joe, Scenario 2 and Scenario 3. In the second scenario, the portfolio suffered an extremely poor return of -16.4% in the second year after Joe retired. As inflation continued raising his distributions, his portfolio could not keep up with them and ran out of money in 29 years.

The third scenario shows two bad things happening early in retirement -- negative portfolio returns and high inflation. These caused the portfolio to shrink at the same time that distributions increased rapidly. This combination led to unsustainably high distributions, and the portfolio failed in 33 years.

Advice for Future Retirees

What can investors do to keep from ending up like Joe, given all the uncertainty about future returns?

1. Have more at the start

The adage for a vacation is to take half the luggage and twice the money, since people know it is not unusual to spend more than planned.

The same applies to the size of retirement portfolios. The best advice is to retire with a portfolio that is worth more than you think is necessary, rather than with a portfolio that will last only if everything goes exactly right.

2. Stress test your portfolio

When planning for retirement, assume negative portfolio returns and high inflation in the first two years of retirement. If the resulting smaller portfolio can support the higher inflation-adjusted distributions over a long life span, you're probably doing OK.

3. Have a Plan B

When considering retirement during a time of either negative market returns or high inflation, analyze your situation closely to see if your portfolio can sustain the resultant long-term stresses. You will improve your probability of success by delaying retirement for a year or two, decreasing your spending, or taking some part-time work -- or a combination of these options.

Your retirement can be more like Sue's if you recognize that the best way to cope with future uncertainty is to save more while you can and to spend at a sustainable rate in retirement.

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Tuesday, 17 May 2011

Financial Markets Hate You: Opinion

By Ali Meshkati,

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- The market hates you. If investors made this profoundly simple premise the basis for every investment decision they made, it would vastly improve investment results.

All of the organisms that make up the financial markets hate you. John Paulson hates you. Goldman Sachs loathes you. Morgan Stanley wants you to drop off the face of the Earth. Paul Tudor Jones likes you a little bit, but he still wouldn't mind seeing you blowup.

Wall Street has a peculiar relationship with the individual investor, small to medium-sized hedge funds and anybody else who doesn't make up the billion-dollar club. Your capital is sorely needed in order to insure proper lubrication of the financial engine that runs the markets.

At the same time, the feeding mechanism at the top (Goldman, large hedge funds, etc.) relies on you being on the zero side of the zero-sum trade. It's a constant battle to keep you interested while at the same time keeping you off balance.

Recently I came across the survey results from the Chicago Booth Kellogg School Financial Trust Index. The survey describes itself as "quarterly look at Americans' trust in the nation's financial system."

To summarize, despite the historic run of the past couple years in the popular market averages and revival of an economy that was near death, trust in the nation's financial system stinks.

Individual investors feel that the markets can crash at a moment's notice. Stock portfolios are unsafe regardless of the investment. Mutual fund portfolios are not that much better. Hedge fund managers, mutual fund managers, analysts and employees of Wall Street firms are loathsome swine for which the fires of hell are an overly generous accommodation for the eternal suffering they deserve. You get the picture.

Given this level of mistrust in the financial markets, it would be safe to assume that we are in an era of cautious allocation into the financial markets following a prolonged period of severe psychological and financial stress.

The best way to describe it is to imagine a group of golden-haired surfers who have been sitting on their couches for the past couple of years playing Xbox and smoking everything they can get their hands on.

There is word of some big waves that have been coming in for some months now. They go to the beach once in awhile and dip their toes and maybe even catch one wave. But the sedentary lifestyle that they have become accustomed to has inhibited the desire of catching that big one. With all the stories of other surfers getting hurt, it is much easier to hang out at home and remain inactive. Why risk it?

This attitude will undergo a dramatic change once neighbors, cousins, friends and taxi drivers start bragging about the waves they have been catching and what an awesome feeling it has been to be back in the water. It's at that point that the swell from which the waves originated will vanish, just as the beaches and waters see the largest crowds.

The point of this study into hate, loathing and surfing is to demonstrate that tremendous opportunities in the financial markets exist at present. The opportunity is built on a foundation of mistrust and fear of investing capital in the markets. It's a long-term opportunity for a historic bull market that will be led by the ginormous, humongous, monstrous amounts of loose liquidity that has been unleashed into the financial system over the past few years.

It's an inflationary trend toward higher asset prices across the board. Precious metals prices are telegraphing a very clear story for global equities. They are essentially saying that the inflation trade is alive and well. With that, assets prices will rise. The issue of real appreciation is for another article. But appreciate they will.

Corrections will come. We may get one here soon. However, a long-term bear market isn't in the cards. The opportunities to buy into equities will be short lived. The spikes down quickly picked up by those who realize the vastness of the opportunity at hand.

In the meantime, a majority of the investment population will remain in distrust. Leaning to the right when they should be leaning left. Relying on their intuition to profit from a counterintuitive business. Not realizing that the market is now offering them a wax with their brainwash. The market hates you. Remember that.

The greatest bull markets of our time have risen from points where mistrust of everything Wall Street was at its greatest. This bull market is no different. It's only the magnitude of its greatness that is to be decided.

Saturday, 14 May 2011

Post-Recession, the Rich Are Different

by Christina Binkley

Bentleys and Hermes bags are selling again. Yet the wealthiest Americans are emerging from the financial downturn as different consumers than they were.

Lyndie Benson says she now mentally calculates the "price per wear" of designer clothing. As the wife of saxophonist Kenny G, Ms. Benson, a photographer, can afford what she wants. She used to make a lot of impulse purchases, she says. But when shopping in Malibu, Calif., recently, she stopped herself before buying a gray Morgane Le Fay suit she'd tried on. "I walked outside and thought, 'Hmmm, I don't really love it that much,'" she says with contentment.

A number of surveys released in the past six weeks suggest Ms. Benson's new selectiveness is widespread among the wealthiest Americans. Though many of these people might seem unscathed by the financial crisis -- they didn't lose their homes, jobs or retirement savings -- they were deeply affected by what took place around them. "If you're conscious at all, it just seeps in," Ms. Benson says.

What's showing up in the latest research is a broad-based caution -- a sudden aversion to salespeople, a tepid response to ads focused on brand images, and a new interest in price-shopping. In Harrison Group's first-quarter survey of consumers with a median income of $275,000, 38% said they wait for items to go on sale, versus 31% in 2010.

Indeed, obtaining discounts on luxury goods has become a competitive sport among many well-to-do consumers, including Jim Taylor, vice chairman of the Waterbury, Conn.-based Harrison Group. Though he is wealthier this year than last, he recently spent a week comparison-shopping for a suit. He ultimately bought his Michael Kors suit on for $185.

Laurence Geller, CEO of the luxury-resort-owning Strategic Hotels & Resorts, told me recently that his favorite place to shop is the Nordstrom Rack discount outlet in Chicago. Harrison Group researchers found Costco and Target were the favorite stores of the wealthiest Americans.

In fact, one time-honored tenet of the luxury industry -- that discounted prices lower products' prestige -- appears to no longer be true, according to several studies. A survey released in April by the American Affluence Research Center, a luxury consultant based in Alpharetta, Ga., found that 60% of respondents said discounts didn't affect their opinion of brands.

Items the rich do value at full price are one-of-a-kind clothes and accessories and experiences that create fond memories. Weekend getaways and vacations were the top two things the wealthy intended to spend more money on, Harrison Group says.

The new luxuries are things that are in limited supply and have an emotional quality, rather than just a high price tag. When I asked New York socialite Olivia Chantecaille about her luxury shopping, she cited a new Hermes Birkin bag -- and a perfect mango she found in Paris. She and her husband have also been shopping a lot at Brunello Cucinelli, an Italian brand known for making J. Crew-style clothes such as cargo pants and comfy sweaters out of deluxe materials such as cashmere. Luxury may be back, but bling isn't.

The affluent are less trusting of brands than a few years ago. That makes sense: When Saks and other stores slashed prices on luxury goods in winter 2008-2009, shoppers got an inkling of the outsized markups on $10,000 handbags.

Consumers are also less influenced by brands' marketing. Harrison Group annually asks wealthy people if they agree with the statement: "I am willing to spend more for designer brands because they are the most stylish and fashionable." In the first quarter of 2008, 51% of respondents agreed. Three years later, 32% agree.

Yet 82% say they are happy with the way they look. "They don't need your brand to feel like they look good," Mr. Taylor told a group of luxury executives last month.

Nor do they want salespeople hammering away at them. Only 2% said they trust salespeople -- down from nearly 50% four years ago.

Part of this may be a reaction to the corporate push of commodity luxury. Ikram Goldman, the owner of the Ikram store in Chicago, says clients these days covet things that aren't mass-produced. She cites Rodarte, which makes artful designs in tiny quantities, as a label that has benefited from new tastes. "They don't feel like they're a dime a dozen," she says. "Our customers are desperate for that."

Christophe Georges, chief operating officer of Bentley Motors Inc., says his clients are increasingly distrustful of corporate marketing. He types his own emails to them, rather than using automated customer-outreach programs. "We are a little amateurish," he says, "and that's a good thing."

Write to Christina Binkley at

Thursday, 12 May 2011

How to tell if you have a really, really bad boss

Chances are that like me, some of you have worked with a bad boss (BB), and it hasn’t taken you very long to recognise them for who they are. Depending on your experience, a BB could range from being a micro-managing freak who takes the credit for a team effort, to someone who is not there when his team needs him the most.

I had the distinct displeasure of working with such a BB in my last role at a prominent financial services firm in Australia. While he was not the primary reason for my leaving, he certainly made my (already long) hours at work interminable.

As most of you already know, what a BB says and what he does can be poles apart. I’ve picked out three examples from my career here.

BB Example 1: Delegate then don’t

The BB said
“I want you to own this project. You are responsible for its successful delivery.”

The BB did
• Provided step-by-step instructions on how the project should be delivered.
• Was critical of any approach that didn’t match his views. Did not accept alternatives.
• Jumped in under the guise of providing assistance when none was requested.
• Laid blame if the project failed, but took centre position if the project was successful (became the ‘face’ of the project).

What’s going on here?
This was micro-management at its most extreme. This manager was unwilling to delegate but made the situation worse by indicating that he could. Obviously his actions were contrary to his instructions given at the start, creating confusion and wasted effort. Staff morale was woeful because reward and recognition for the team was absent.

BB Example 2: None-on-ones

The BB said
“I want us to have monthly one-on-ones to ensure your development plan is on track.”

The BB did
These meetings were rescheduled regularly as the BB tended to have other urgent appointments. The so-called monthly sessions soon became ‘quick catch-ups’ every six months.

What’s going on here?
My BB viewed himself as a manager not a leader. He made it clear that he was primarily interested in whether daily tasks were delivered, and made time to check up on this. When in came to discussing how his staff were feeling and whether they were growing in their roles, the BB was unavailable. Although he spoke about the need to undertake monthly discussions, I wonder how much of this was because HR required him to do so. Actions here spoke louder than words.

BB Example 3: Free? Who? Me?

The BB said
“Feel free to talk to me if you need assistance.”

The BB did
Like everyone else, the BB was extremely time poor, but he made a point to let everyone know about it. He constantly complained about the number of meetings he had and why “people just can’t leave him alone”. Attempts by the BB’s staff to see him generated scathing remarks: “here we go again…another meeting”.

What’s going on here?
The BB may have genuine time management issues and of course it’s unrealistic to expect your manager to drop everything and be by your side every time you need help. Being new to his role, my BB was on a profile-building exercise with people he considered important stakeholders. He was almost always unavailable to discuss serious matters with me because he was unwilling to rescheduled appointments with these stakeholders. As a result the BB was not around to handle resignations in his own team.

Final note
The above are snapshots of my own personal experiences and they are not meant to cast all busy managers as bad ones. However, having gone from a manager who knew how to lead to a BB within the space of two jobs, I have been able to experience the huge morale drop that a BB can cause.

The Candidate: Four non-financial skills that will help you nab a financial job

In order to secure a financial services job in Asia, you need to possess a range of critical, non-financial skills. On your CV and during interviews, make sure you show off all your abilities, not just the technical ones required for the specific role you’re applying for.

Here are the top-four soft skills I believe you must have if you want to succeed in banking, and my thoughts on how best to demonstrate them to prospective employers.

1) Communication and relationship management

Communication skills involve strong speaking, writing and presentation. It is important to communicate knowledge in a way that people understand. Communication also plays a part in marketing yourself. Building relationships and managing them is part of any role, whether you are dealing with clients, bosses or colleagues.

2) Project management

Project management skills such as time management, meeting deadlines, managing budgets and even keeping your files organised are requirements to completing a task successfully. Being disorganised or sloppy is not acceptable anywhere. Being great at project management is a big plus and it might help you to stand out among your colleagues.

3) Problem solving

Problem solving is another essential skill. It helps you think clearly and deal with issues head on, rather than buckling under pressure. It also helps build relationships if you assist your colleagues with their problems.

4) Technological skills

IT expertise makes you more efficient and productive. You can boost your career by being able to pick up new software quickly, knowing more functions in Excel, or understanding which freeware tools can assist you to work more efficiently.

Showcasing your skills

These skills may not necessarily be in the job description but hiring managers do look for them in candidates, so I think it’s important to demonstrate them in your resume and during interviews.

In your CV

You could include them in your list of achievements in previous jobs and/or in your list of training courses you have completed. One of the best ways to demonstrate your achievements is showing how you solved problems – for example if you saved money by closely managing the budget. Another example is demonstrating your people skills by describing how you built trusted relationships with clients or received great reviews from your team.

During an interview

You can use an interview to elaborate your non-financial skills. Behavioral interviews are especially good for this purpose. Examples include describing a situation where you handled a difficult client, worked under a tight deadline or introduced a new tool which helped your team work more efficiently. I believe that highlighting these softer abilities on top of your technical skills and experience will help you to standout from the competition. They make the difference between a person who has just has the qualifications and a person who can get the job done.

The views expressed in this article are those of the writer and not of eFinancialCareers. The author is a job seeker in Singapore.

Tuesday, 10 May 2011

5 ways to manage your autocratic boss

Got a boss who's too bossy? You can turn that to your advantage, says a veteran HR executive. Here's how.

By Anne Fisher, contributor

FORTUNE -- Dear Annie: I am a senior software specialist with decades of experience. Yet the manager I'm working for still doesn't trust me and won't grant me any decision-making flexibility. In fact, he treats me like one of the enlisted men who worked for him in his previous career in the military.

I've consistently kept my skills up to date through multiple technology evolutions, and my knowledge of my field is far superior to his. Nevertheless, he limits my "bandwidth" to what he understands, which is nowhere near my potential. As a team, we've paid the price for his ignoring my technical advice. How can I get him to loosen up and treat me like a senior team member, if not an equal? — Seething in Silence

Dear Seething: Yikes. It sounds like you have two separate problems here -- your manager's top-down, command-and-control management style, and the fact that he seems to know less than you do. Let's start with the first one.

Anybody reporting to a difficult person (which includes most of us, at one time or another), has three basic choices, says Gonzague Dufour: "Limit the pain, target the gain, or leave."

In a new book, Managing Your Manager: How to Get Ahead with Any Type of Boss, he identifies six broad types of "bosses from hell" and offers practical strategies for minimizing the damage they can do to your career, not to mention your blood pressure.

Dufour, a longtime HR chief at Philip Morris (PM), Kraft (KFT), and other large companies, now runs executive recruiting and development at Bacardi. He wrote the book because "I've been asked hundreds of times over the past 30 years, 'How can I deal with this impossible boss?'" he says.

He also reported to a few bad bosses himself, including one who was "smart, empathetic, and incapable of making a decision," and another who was "skilled at getting promoted in large part because he was equally skilled at blaming others when things went wrong." At times, he recalls, while having to work closely with a maddening higher-up, "I felt we were the equivalent of a dysfunctional married couple."

In your particular situation, Dufour suggests trying these five steps:

1. Limit the pain, target the gain. Recognize that working for this person is "a temporary assignment. You can set limits on how long you'll tolerate it, and use the time to make yourself more marketable." Let's say you decide you can take one more year of this (assuming your boss sticks around that long). "If you figure out what you need to get out of the job to help your career, and go after it, you have a positive incentive to serve out that term," Dufour says.

2. Avoid surprises. Autocrats, even more than most people, "hate to be blindsided," Dufour notes. "Therefore, keep them informed of significant, and even relatively insignificant, developments. They crave control and power, so feeding them tidbits of information satisfies this craving."

3. Be the go-between for your team. If you haven't already taken on this role, Dufour recommends that you earn the trust of other members of your group and be the one who communicates their problems and needs to the boss. "This can be intimidating, since it means telling him things he might not want to hear," Dufour says, "but the tradeoff of elevated status is worth it."

4. Refuse to be a "yes man." Although many people try to appease an autocrat by telling him exactly what he wants to hear and following every order to the letter, "this is a huge mistake," Dufour says. Instead, "wait until you're convinced your manager is making a huge mistake" -- one that will jeopardize his own stated goals -- "or until you come up with a better idea that you truly believe in."

Then, make a concise, logical case for your approach: "Emphasize the positive outcome. Focus on what your boss will get out of doing as you suggest." If you've already tried this, keep at it: "Rehearse your argument beforehand and make sure you are stating it clearly and rationally" -- and without a trace of condescension for his (alleged) lack of technical knowledge. Sometimes, of course, it's not what you say that can trip you up, it's how you say it.

5. Do the tasks your boss dislikes. In general, command-and-control bosses "don't enjoy extended debate and discussion, and they aren't adept at dealing with any type of 'people problem'," Dufour observes. So consider making that your specialty (which will do no harm to your own long-term career prospects either, incidentally).

Helping your boss compensate for his lack of soft skills "won't earn you thanks. In fact, he may resent your ability to do something he can't," notes Dufour. However, even autocrats are rarely so oblivious that they don't know, deep down, that ignoring "people problems" will eventually damage their own professional prospects -- and that, says Dufour, "is one thing they can't stomach."

Now, about your second issue, to wit, your perception that your boss's technical knowledge isn't up to snuff: It's up to you to make sure his shortcomings don't hold you back. If you haven't already started doing so, Dufour urges you to develop an area of expertise and then get busy building a network all over the company.

"Create alliances with as many different people as you can, from human resources to other technical areas to support staff," he says. "The point is to become widely known as the 'go-to' person for a particular thing, so that your reputation and your career do not depend solely, or even mainly, on the good will of this one boss."

Even if you worked for the world's most fabulous manager, "you need to be visible, or you'll miss out on opportunities," Dufour points out. Get noticed by just one of the right people and who knows: You could get promoted out from under this guy sooner than you think -- and then he'll be somebody else's problem.

Talkback: Have you ever worked for an autocratic boss? Who was the worst boss you ever had, and how did you cope? Leave a comment below.

Monday, 9 May 2011

The New Class of Billionaires

by Robert Frank

Giant initial public offerings and a surge in mergers and acquisitions are spawning a new generation of billionaires and millionaires.

The eight biggest global IPOs launched since January have a combined corporate value of $75 billion, according to Dealogic, creating billions of dollars in wealth for company founders.

Even on its own, the initial public offering of Glencore International AG will likely create six billionaires, marking the start of a new global wealth boom driven by rising financial markets and tech-sector euphoria.

The new generation of the ultrawealthy includes a Swiss medical-device tycoon and a California surfer who netted $60 million from the sale of his clothing company.

The deals and IPOs mark the official return of the "liquidity event"—a one-time windfall of cash that rains down on company founders or shareholders when they sell their stake. Liquidity events were common during the dot-com bubble of the late 1990s and the real-estate boom of the 2000s, when dot-com founders like Steve Case of AOL Inc. (NYSE: AOL - News) or later mortgage giants like Herbert and Marion Sandler cashed out of their companies for billions.

After the 2008 financial crisis, however, big liquidity events largely evaporated. While the latest wave is highly concentrated among a handful of social-networking and commodity companies, it's likely to spread to other industries as long as financial markets and economies continue to strengthen.

"The liquidity event is back, especially for these emerging technology companies," said George Walper, president of The Spectrem Group, a wealth research firm. "The question is whether it will broaden to cover more main street firms and brick-and-mortar entrepreneurs like we saw in the 2000s. It may take years for that to happen."

Much of the wealth creation is overseas. This week's public offering disclosures from Glencore, the Swiss commodity trading firm, valued the holdings of six of the firm's shareholders at as much as $23 billion. Chief Executive Officer Ivan Glasenberg's 15.8% stake is potentially worth $9.5 billion.

This week's IPO of Renren Inc. (NYSE: RENN - News), the China social-networking site, gave founder and CEO Joe Chen a net worth of more than $1 billion.

Such paper wealth may prove as ephemeral as the bull market. During the dot-com boom of the late 1990s and early 2000s, companies like online grocery shopping service Webvan Group Inc. raised millions from IPOs, but quickly crashed because of falling markets and failed business strategies. They typically had high costs and low profits instead of the other way around. Webvan was valued at more than $1 billion at its peak, but was later forced to close.

In the U.S., technology companies are restarting the wealth engine, especially consumer Web companies. In a sign that today's dot-com euphoria and flood of investment money may exceed the late 1990s, the founders are becoming paper billionaires even before an IPO or sale. Facebook Inc., Zynga Inc., Twitter Inc. and Groupon Inc. have all yet to go public, but their combined value from private investments and other deals now exceeds $75 billion.

Mark Zuckerberg leads the pack with a notional net worth of more than $12 billion. The company remains private and is expected to go public as early as next year. A private investment in the company by a group of investors including Goldman Sachs valued the company at $50 billion, making Mr. Zuckerberg's 24% stake worth more than $12 billion. Some investors have purchased shares on the private market that value the company at $70 billion.

Twitter late last year raised private money that valued the firm at $3.7 billion, giving the three founders paper wealth totaling hundreds of millions of dollars. Groupon, the discount deals business, has held talks that would value the firm as high as $25 billion.

Mark Pincus, CEO of online game developer Zynga, may also be on the way to becoming a billionaire. Recent investments in the company value the firm as high as $10 billion.

Some nontech entrepreneurs are also cashing in. Johnson & Johnson's (NYSE: JNJ - News) deal to buy medical-equipment maker Synthes for more than $21 billion netted founder Hansjörg Wyss more than $10 billion from his 47% stake.

French luxury-group PPR's deal to buy California surf-and-skate brand Volcom Inc. for $607.5 million represented a 37% premium and netted $60 million for CEO Richard R. Woolcott, the 45-year-old California surfer who co-founded the company. The company's motto is "Youth Against Establishment."

Write to Robert Frank at

10 Retirement Issues That Are Here to Stay

by Philip Moeller

It's impossible to know what tomorrow may bring. We don't know how much gasoline prices will rise, how the various Mideast peoples' movements will turn out, or whether Donald Trump will turn his presidential polling numbers into a new reality show. Wait — we may know how that last one turns out. But for the most part, we turn the page on each new day and wait to see what the sunrise brings.

Life is different in Retirement Land. Here, there is a lot more certainty in sniffing out the major issues that will confront retirees and people getting ready to retire. Regularly, a common group of core issues is studied, reported, blogged, and tweeted about — day in and day out, week in and week out, year in and, well, you get the picture.

Here are 10 of the most commonly aired retirement issues. Beyond getting a jump on tomorrow's news, it can be to your advantage to consider these issues in your own retirement plans. Regardless of whether you're 20 years into retirement or 20 years away from it, being on the right side of these long-term concerns is the best place to be.

1. Boomers turn 65 unprepared for retirement. Hope springs eternal and so do our best wishes for aging baby boomers. Every year, the Employee Benefit Research Institute and other think tanks issue research documenting how poorly Americans are prepared for retirement. We haven't saved enough money. We don't do a good job of investing the meager retirement funds we have scraped together. We don't know how much it will cost us to live in retirement. There is much informed moaning and gnashing of teeth. Then we repeat the exercise the following year, and the next, and the next. Seriously, are you prepared for retirement? Think about what this means for you and your family. Make a plan and carry it out.

2. Americans don't understand finances and investments. Instead of studies about how unprepared we are for retirement, maybe we should spend the research money on financial literacy education. Without signing up for a Ph.D. curriculum, there are countless strong sources of financial education online as well as at a nearby college or community center. I recently did a primer on retirement planning that included links to lots of great investor education sites. Check them out.

3. Huge federal deficits threaten our way of life. Everyone is waiting for the shoe to fall on this one, but the joke may be on us. The shoe has already begun falling. The plummeting value of the dollar, which has worsened the oil-price hike, is directly linked to falling international confidence that the U.S. government will find the will or the way to seriously tackle our deficits. Deficits are also partly to blame for the preference of many companies to increase jobs overseas while U.S. employment languishes. How much more proof do we need? Our energy and economic futures are already being sapped a little bit every day. For many retirees, deficits will mean lower growth and a reduced quality of life for the rest of their lives.

4. Social Security is broke and broken. I have seen this story a gazillion times, and we don't even have a serious reform proposal on the table yet. Social Security needs to be mended, but it's hardly broken. The Social Security Administration calculates that the program can pay all promised benefits until the year 2037. Then, its reserves will be exhausted and ongoing Social Security payroll taxes will cover only 78 percent of benefits. Now, if it's judged that promised Social Security benefits are not affordable, I suppose they can be cut. But because the program is funded with payroll taxes, workers deserve a say in how much they're willing to spend to secure their future benefits.

5. When should I begin taking Social Security? In the meantime, the decision about when to begin taking Social Security tops the hit parade of financial issues that confront nearly all Americans approaching retirement. For people who are not in poor health or have family histories of early deaths, the best answer is usually to wait. Taking benefits as soon as possible at age 62 locks in payments that are only 75 percent of what they would be at age 66, which is defined as the full retirement age for the current wave of retirees. Delaying benefits at age 66 will raise them by 8 percent a year until age 70, after which benefits do not increase with age. The Center for Retirement Research at Boston College has useful guides to Social Security claiming strategies and to proposals for restoring the program to financial health.

6. Get ready for inflation. We have been seeing inflation around every corner for so many years that we've just about run out of corners. Core rates of inflation have been very low, and that's still the case despite the current run-up in food and energy prices. However, if the recovery gathers any steam — and we'd all better hope it does — we can expect inflation to become more than the specter it's been in past years. Retirees must plan for inflation. This means that the buying power of fixed incomes will erode over time. It means the real return of investments, after inflationary factors are considered, may decline.

7. Look carefully at retirement fund fees. It can be very hard to determine how much you actually pay the firms that manage your retirement accounts and mutual funds. Often, the firm with a higher fee does not do a better job of managing your money. Because fees are charged year in and year out, they can have a big impact on long-term investment returns. The funds' prospectuses provide some information and federal disclosure rules are being strengthened. Morningstar has solid information as well, although some of its best tools are reserved for people with paid subscriptions.

8. Medicare cuts would ruin seniors' futures. Seniors will face healthcare challenges for the rest of their lives. Access to care will become harder to find as the nation's growing physician shortage runs smack into rising numbers of aging baby boomers looking for more care as they get older. In addition, Medicare costs will be under relentless pressure. The health reform law aims to cut Medicare expenses over time. Proposals to cut federal deficits must include Medicare to be credible. House Republicans would replace Medicare with a voucher program in 10 years for future retirees. But even less dramatic changes would probably raise the share of medical expenses paid by seniors, particularly well-off seniors.

9. Retirees are worried about outliving their money. Just when we should be happy about regular gains in longevity, we're instead bummed out by fears that we won't have enough money if we survive to old age. Remember those annual surveys showing how ill-prepared we are for retirement? They're often linked with polling questions showing how fearful we are of outliving our money. Think there's a relationship?

10. Low interest rates hurt retiree incomes. Who'd have thought we'd be quoting interest rates on U.S. Treasury securities in thousandths of a percent? Welcome to low interest rates — the savior of economic recovery (maybe) and the scourge of fixed-income seniors. The Federal Reserve's free-money policy has destroyed meaningful returns in bonds, CDs, and other holdings with returns tied to interest rates.
Copyrighted, U.S.News & World Report, L.P. All rights reserved.

Saturday, 7 May 2011

Number of millionaires is projected to rise rapidly

Despite the Great Recession, which wiped out $15.5 trillion in household wealth in the United States alone, the number of millionaires in this country and abroad will grow rapidly over the next decade.

In the U.S., the total number of families with a net worth of over $1 million, including real estate, will double by 2020, according to a report by the Deloitte Center for Financial Services.

Overall, the U.S. and Europe have the greatest concentrations of wealth than any other region, although emerging markets are narrowing the gap.

China will lead the way in millionaire growth, the report said, followed by Brazil and Russia.

By 2020, China and South Korea will rank in the top 10 of countries with the greatest total number of families worth more than a million dollars.

"There is going to be very fast growth, but it will take a lot longer to reach anything like the wealth in the developed world," said Andrew Freeman, lead author of the report. (Calculator: When will you be a millionaire?)

With 10.5 million, the U.S. has -- by far -- the greatest number of millionaire households in the world, despite the financial crisis and ensuing recession which knocked more than 3 million millionaire families off the map between 2006 and 2008.

The number of millionaire households is expected to return to pre-crisis levels by 2015 and reach 20.6 million in 2020, maintaining the U.S.'s position in the top spot.

By then, 43% of the world's wealth held by millionaire households will be in the U.S., up slightly from 42% this year, the report said.

Japan is expected to rank a distant second, with 8.6 million millionaire households in 2020 and 9% of the world's wealth.

China is expected to be No. 7, with 2.5 million millionaire households in 2020 and 4% of the world's wealth.

Within the U.S., California will likely have the most number of wealthy households by 2020, while Wyoming is forecast to have the fewest. New Jersey will have the highest density of millionaires with a quarter of all households projected to be valued at more than $1 million.

The Deloitte report looked at 25 economies worldwide. The definition of wealth included financial assets, such as stocks, bonds and other investments and non-financial assets like real estate, automobiles and art. It was sponsored by the Deloitte Center for Financial Services and conducted with Oxford Economics.

Save $100 a Week with These 22 Tips

With the dramatic increase in gas and food prices, most of us can barely make ends meet, let alone think about saving money. The good news is, with a little imagination and perseverance, there are still plenty of ways to pocket extra cash.

Follow these 22 simple tips and save at least $100 a week:

Buy a Water Filter

Purchasing bottled water hurts not only the environment but your wallet as well. According to the Learning Channel, a family of 4 can save up to $55 a week by making the switch from bottled water to water filters.

Take Advantage of Power Strips

You can cut down on your utility bill by unplugging your appliances when you aren't using them. Make the unplugging process easy by purchasing a power strip for your appliances.

Make Shopping and To-Do Lists

Make a list of everything you need before you shop. Make sure your list only consists of needs, not wants. Then, be sure to stick to your list. You can also use to-do lists to save a ton of time. By grouping together all your errands, you can get everything done in one trip, saving you valuable minutes and gas money.

Stay Away From "Foreign" ATMs

We've all done it: using our bank card at another bank's ATM to withdraw some extra cash. But every time we do this, we get hit with a wonderful little fee. Now, there is no reason not to use ATMs owned by your bank when apps like ATM Hunter can help you find the right ATM in seconds.

Buy Generic

You can save 30 to 60 percent by purchasing generic brand food and drugs. According to a study by Consumer Reports, 80% of the time trained tasters cannot tell the difference between store and national brand food products.

Cancel Your Landline

In an age when everyone has a cell phone, landlines are not necessary. You can also utilize free computer-to-computer calling via Skype, which beats using the phone because if you have a webcam, you can see the person you are talking to.

Utilize the Library

Instead of hitting up Netflix or Blockbuster every time you want to watch a movie, head to your local library for your movie rental needs. Or, if there is a new book you want to read, borrow it from your library instead of purchasing it at the bookstore.

Bye-Bye Gym Membership

Most exercises you do at the gym can be modified and done at home. Better yet, the most beneficial exercises out there are walking, pushups, and squats, all of which you don't need a gym to do.

Take Your Lunch to Work

Instead of going to the deli down the street for lunch, brown bag your lunch. You can make a week's worth of sandwiches on your own for the price you would pay for one or two sandwiches at the deli.


With gas prices on the upswing, filling up the tank can be a huge money drain. Organize a carpool with your coworkers to save money. If you can't find any coworkers to carpool with, check out Zimride to find a carpool buddy.

Walk or Bike

To find out how walkable your city is, check out Walk Score. Ditching your car completely will save you a ton of money not just on gas but also on wear and tear on your car.

Avoid Convenience

Wash your own car, cut your own fruits and veggies, and clean your own house. If you don't think you have enough time to wash your own car, remember that there are 24 hours in the day. Even if you spent 10 hours at work, 8 hours sleeping, 2 hours cooking, and 2 hours hanging out with the family, you would still have 2 hours to wash your car or clean your house.

Pay Bills On Time

Most banks offer free electronic bill payment services that will automatically pay your monthly bills. It only takes a few minutes to set up. Do it today and never pay a late fee again.

Make Your Own Pet Toys

Try to steer clear of Petco and Petsmart when it comes to your pet's toys. It is easy to make pet toys on your own for a fraction of the price you would pay for them at a pet store. Beautify Yourself Instead of hitting up expensive salons, try trimming your own hair or getting a value haircut from a beauty school.


If you are going out for a night on the town, pre-game before you leave. This way you will spend less money on expensive drinks at your favorite hot spot. You can spend up to $5 for a beer at the bar or find a 12 pack that's on sale and pay just over $1 per beer.

Cancel Cable

With the ability to watch TV shows online for free, the need for cable is virtually nonexistent. Yes, it may be nice to see a show as soon as it airs, but it's much nicer to have extra money in your bank accounts. Try using Hulu for your TV viewing needs.

Make Your Own Food

While it may not be as convenient as going to the drive through or having food delivered to your house, making your own food can save you a ton of money.

Stay In

Sure, it may be mellower than going out, but cooking your favorite meal, making your favorite drink, and watching a DVD can be just as fun as a night on the town.

Make Your Own Coffee

This is a tried and true money saving technique that we have all heard, but it bears repeating. Make your morning cup of coffee at home instead of paying way more than you should for a cup of Joe at your favorite coffee shop.

Avoid Bank Fees

Setting up direct deposit for a certain amount can often eliminate fees associated with keeping an account open. You can avoid paying overdraft fees by linking your checking and savings accounts, or by signing up for fee e-mail alerts that tell you when your account is getting close to the limit.

Use Coupons

A tried and true money saving method: before you head to the grocery store, check the ads to see if there are any coupons for the items you need. Or, go online and check out CouponMom or The Daily Deals Blog to find the latest discounts.

Ashley Jacobs is the college correspondent for personal finance blog Wise Bread. Follow her latest tweets on @CollegeCents.

Is The Market Rigged? Survey Says … ‘Yes!’

It's back to square one for the jurors in the insider trading case of hedge fund billionaire Raj Rajaratnam. Jurors will have top start the process all over again starting today after a juror was dismissed for "medical" reasons.

Meanwhile, more evidence the stock market is not a level playing field: 47% of respondents in a survey of 400 investors from across the world found one-on-one meetings with companies regularly lead to price sensitive information being divulged, according to the Rotterdam School of Management.

Surveys like this, along with the Rajaratnam trial, the saga over David Sokol's Lubrizoil trades and a overwhelming sense the market is stacked against them helps explain why mom & pop haven't piled back into stocks even after a more-than 2-year bull market.

In the accompanying interview The Daily Ticker's Aaron Task and Daniel Gross discuss just how prevalent insider trading is on Wall Street with Barry Ritholtz director of research at FusionIQ.

"It may not be completely and totally rigged but damn if the odds aren't against the average investor," exclaims Ritholtz. That does not however mean the pros are trading secrets amongst themselves. "Real inside information is actually surprisingly rare [but] I wouldn't be surprised if it's traded on pretty actively," he says.

In Ritholtz's experience what separates the successful professionals from the average individual investor is an information edge, in terms of research and analysis, not privileged information. Most of the rumors whispered around trading floors simply don't hold water, he says. "The best of the fund managers -- they're doing their own channel checks," i.e. legitimate research on industry trends from which they make informed bets about the fate of related companies.

Even if professionals are getting illegal tips from their one-on-one meetings, as the survey suggests, Ritholtz says there are few slam dunks, outside of inside information about pending mergers.

Either way, it's not the way you want the markets to function.

Monday, 2 May 2011

7 Ways to Sink in a Stagnant Economy

Rick Newman

A lot of Americans are wondering why the so-called economic recovery hasn't paid a visit to their neighborhood.

The economy is growing and finally adding more jobs than it's shedding. Corporate profits are strong, and workers in favored sectors seem to be buying cars, iPads, restaurant meals, and luxury items. But it's a scattershot recovery. Nearly 14 million Americans remain unemployed. Many others can't find the kinds of jobs they want, or are earning less than they were before the recession began at the end of 2007. Home values continue to fall, eating away at household wealth. Many families feel like they're falling behind, with rising gas and food prices making the sting worse.

The recovery, unfortunately, doesn't apply to everybody. Workers with up-to-date skills and the vigorous energy it takes to adapt constantly are poised for a return to prosperity. But many others are stuck flat-footed in a confusing, Darwinian economy, out of good options and unsure what to do. Some of that is due to the depth of the recent recession and the abrupt transformation of industries such as housing and construction. But people also make a lot of mistakes that limit their own opportunities. Here are seven of the most commonplace ways to fall behind in an uncertain economy:

Stick with what you know. Technology is evolving faster than ever and becoming a dominant factor inside many companies. That's why people adept at Web development, data mining, social media, and mobile applications enjoy strong prospects for raises and promotions. Many such jobs didn't even exist five years ago, and people who jumped into something new are now enjoying the benefits, like rising pay and job offers from fast-growing companies. High-end recruiters repeatedly say that the best offers go to people with multiple skill sets, especially if they can blend traditional expertise in marketing, law, manufacturing, or other disciplines with cutting-edge technological know-how. But if hot job offers don't interest you, keep trying to earn a living using the same skills you developed 10 or 20 years ago. They'll become obsolete sooner or later, and your prospects will slowly degrade along the way.

Demand the same pay you got five years ago. It's natural to think that if you used to earn $15 an hour, say, or a $50,000 salary, then you're worth at least that much today. But that's a fallacy. Your value as a worker at any point in time is what somebody is willing to pay you, nothing more. In the past, pay was good in many fields because the economy was strong and it was hard to find qualified workers. But now there's a glut of workers in many industries, and companies can pay less for the same people. In construction, for example, about two million jobs have been lost since the start of the recession, with no rebound evident yet. With real-estate values down and contractors under severe pressure to slash costs, it's not reasonable that they'll offer the same pay they did during the real-estate boom--especially if there are five or 10 applicants for every job.

Nobody wants a pay cut, but without distinctive skills, the only way to snag a job is to be the low bidder--the one willing to work for the least pay. If you do that, at least you'll be in the workforce, where you can learn more and perhaps get a raise if you take on more responsibility. Or you could hold out for more, but you'll have to wait until everybody willing to work for less than you has been hired.

Gripe about globalization. If you're a complainer, these are the glory days. It's definitely true that big, multinational companies are shipping jobs overseas, hiring cheap foreign workers instead of Americans who could do the job for more. If that's starting to happen in your field, it's a warning sign that your industry is declining or your skills are becoming dated and you need to invest more heavily in yourself to stay ahead. But you could ignore that warning and hope that your job never gets outsourced, and then, if it does, blame foreigners and greedy bosses for your obsolescence.

Globalization, by the way, benefits a lot of Americans, too. It's one reason there's so much cheap, foreign-made stuff at Wal-Mart. U.S exports have been a bright spot lately, with people in other countries buying an increasing amount of stuff made in America, by Americans. And strong profits at U.S. corporations--perhaps the biggest thing keeping the economy going at the moment--are due, in part, to demand coming from overseas. So globalization helps create some U.S. jobs, too, and that trend could intensify in coming years as foreign consumers become wealthier and buy more stuff made in America. But if that interferes with your complaining, never mind.

Stay where you are. Jobs move around in a dynamic economy like ours, because companies and the investors who finance them deploy their money where it's likely to earn the highest return. So workers who want the best opportunities need to move where the jobs are. Some people are lucky enough to live in regions where the economy stays vibrant for a long time. But in a lot of other places, fortune comes and goes. In nine states, for instance, the unemployment rate is still 10 percent or higher, including California, Nevada, Florida, and Michigan. In North Dakota, South Dakota, and Nebraska, it's under 5 percent.

It's obviously hard to move if you're underwater on a house and would be forced to take a loss if you had to sell. But if you live in a depressed area where jobs are scarce, the cost of not moving is high, too: depressed pay, limited opportunity, and a better-than-average chance of prolonged joblessness. And some people refuse to move because it's too inconvenient to uproot the family or leave friends behind. Those are valid issues, but it still doesn't mean a good job will come to you. Instead, it will go to somebody else who went looking for it.

Work in a declining industry. Industries rise and fall as the economy changes, and some fields, such as printing, insurance, state and local government, and what's left of the textile industry, are likely to shrink for the foreseeable future. That means there will be fewer jobs, fewer promotions, downward pressure on pay, and less overall opportunity. Some people stay in declining industries anyway, because they know the business and it would be time-consuming to learn something else. But they're also taking a pass on better opportunities they might find if they transferred into growing industries like healthcare or a variety of tech-based fields. Oh well, you can always work longer and retire later (as long as you don't end up laid off yourself).

Milk your career until retirement. A lot of baby boomers sense their own obsolescence--they don't know what "the Twitter" is and they're constantly asking twentysomething colleagues for computer help--but they're hoping they can hit retirement age before the boss notices. Some will make it to the finish line. But many disenchanted boomers have been among the eight million people who have lost their jobs since 2008--and as they've found, it's awful to end up out of work in your 50s or 60s with stale skills and high pay requirements. Hardly anybody's inoculated against the turbulent economy these days, so smart employees will keep themselves fresh and relevant until the day they hang it up. Work is more fulfilling when you're fully engaged anyway. But if that seems like too much effort, roll the dice and coast through the last few years of your career.

Wait for the government to fix it. The government has come to the rescue before, so it probably will again, right? Um, no. In the past, Washington was able to cut taxes, extend unemployment insurance, stimulate the economy, and add generous new benefits like the prescription drug subsidy for seniors because it was more solvent and better able to borrow than it is now. In the future, however, it needs to reverse those unfunded giveaways and start paying down all the debt accumulated over the last 10 years. No matter what politicians say, that means fewer benefits and subsidies, and higher taxes, probably starting sometime after the 2012 elections. So if you don't bail yourself out, there may be no rescue.

Retirement Savings Advice: Age 30's and 40's

by Ray Martin

A few days ago I wrote about retirement savings advice for folks in their 20's and 30's.

But folks in their 30's and 40's confront many challenges than can interrupt a good retirement savings strategy. This is the time when other life events, like getting married, buying a home, having children, etc., can compete for more of your income, leaving little if any to save for retirement which is a long way down the road.

A Milestone to Reach in Your 40's

According to the National Savings Rate Guidelines study, assuming you are looking to retire at age 65 and earn an average income, by the time you are age 40 you should have accumulated 4 to 6 times your annual pay in retirement savings be saving 15 percent or more of your income in your 401(k). Check to see how you compare.

Here are some guidelines for folks in their 30's and 40's to consider.

Don't Interrupt Retirement Savings

It is all too easy to allow other priorities to crowd out your retirement savings. But don't stop saving for retirement!

Some people think that buying a home will be their main source of retirement savings. But there are significant risks in relying on your home equity as your long-term retirement income plan. The home may not appreciate and you may not get the price you want when you sell. Also, in retirement, you'll still need to pay for some place to live. Even folks in other countries know that homeownership is no substitute for retirement savings.

Some folks are tempted to stop saving for their retirement in favor of putting money away for their children's college education, which is also important. What you need to keep in mind is that while there are financial alternatives (loans, scholarships, etc.) that can help to pay for education costs, there are no such programs to pay for your retirement!

Often saving for retirement gets put on hold when a two-income household suddenly becomes a one-income household, such as often the case upon the birth of children. A negative impact on retirement savings for workers who leave the workforce is that they do not continue to participate in an employer provided retirement savings plan such as a 401(k) plan. If you do this, even if only for a few years, you still should continue to accumulate retirement savings in your name. One way to do this is to open and contribute to a Spousal IRA.

Contribute 10 to 15 Percent

By now, you should be contributing more than 10 percent to your 401(k) plan, because you were taking a part of each increase in pay to increasing your contributions to your retirement savings. Also, as your income grows, more of it will be included in higher tax brackets. This makes the pre-tax contributions you can make into a 401(k) plan more valuable to you.

Auto-Increase Contributions

One of the more recent features provided by 401(k) plans of larger employers is called an automatic contribution escalator. This allows plan participants to set up future increases in their contributions to coincide with expected pay increases. So if you are currently contributing 12 percent and next February you are expecting a three percent raise, then set the contribution escalator to increase your 401(k) plan contributions from 12 to 15 percent at that time and it will automatically change for you. If you find that the increase in savings was not leaving you enough net pay to get by, then just log on to the plans web site or call the plans service center to change your contribution rate.

Invest for Growth and Diversify

Since retirement is still a long time away, your retirement savings should still be invested mostly in stock funds. But now that your balance is larger, diversification becomes more important. Chances are you will experience a stock market down turn. If the stock market falls 10 percent, a $100,000 portfolio invested 100% in stocks will fall in value by $10,000. On the other hand, if your portfolio was invested 75 percent in stocks, it would only fall $7,500, which would be easier to recover from.

Rebalance and Monitor Your Account

Unless you have signed up for an account management service, you should not treat your 401(k) account allocation like the popular chicken roaster as seen on TV and simply 'set it and forget it!'

Take the time to review your account and its performance at least quarterly. The good news is that most large employer's 401(k) plan web sites today include a personal rate of return, which indicates the performance of your account. Also review the year-to-date performance of the funds in which you are invested and compare these to their peer-group index performance. This information is provided by most plans. You also should be rebalancing your account at least annually. Many large employer plans also feature an automatic rebalancing feature, which you can elect to set either on the plans web site or by calling the plans service center. This automatic rebalancing feature will typically rebalance your account either quarterly or annually and is typically offered at no additional cost.

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