Target date asset allocation funds miss the mark!

 

In theory I have always been excited about target date asset allocation funds because I have seen the bizarre and down right scary portfolios individual investors have constructed.  I get asked by inexperienced investors how they should allocate their retirement accounts and usually start with telling them to take a look at target date funds.

 

However, I was wrong.  This bear market has shown these funds to be disappointments. Target date funds providers are cheating!  Shorter target date funds are much too heavily invested in stocks.  For example, those retiring in 2010, which is about a 1 year time horizon have anywhere for 59% to 48% percent of their portfolio in stocks.   Why would these fund families allocate so much to stocks?  Mutual fund shops sell performance numbers and the marketers realize in bull markets you get better performance numbers by investing in stocks compared to boring old bonds.  As a group, target date fund providers invest too much in stocks because they need competitive performance numbers. Without strong performance numbers what will those NFL halftime commercials of the guy rowing a boat, riding a bike or climbing a mountain have to tell you about how their funds?

The Thousandaire Mind – Because Wealth is for suckas!

 

The Thousandaire Mind is not related to the bestselling book The Millionaire Mind written by Thomas Stanley.  This is a list of “secrets to becoming a thousandaire.”

 

Anemic global economic growth continues…

 

One of the upcoming themes we will hear more about the next 18 months is the anemic economic growth across the global.  The chart above shows “estimates” of some key regions and countries.  I think the U.S. number is optimistic, but I agree with it directionally and the idea that the U.S. will recovery before many of our European brethren do. 

 

Saving money is good, but spending is better (for the economy over the short run)!

  

I don’t remember what economist said it, but the saying goes something like this, we (as a nation) need to start saving, but just not at the same time.  Why are we saving more?

The big reason is the uncertainty in the labor market and lack of confidence in the overall economy.  We are shedding over 600,000 jobs per month and I suspect we will lose 600,000 plus this month as well.  However, the pool of those worried about losing their jobs is much larger than the pool that will ultimately get canned. The end result may be personal balance sheets may actually improve as a result of their increased savings.

Quote of the day: Sir John Mills

 

Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.

Sir John Mills

What is the VIX currently saying about the S&P 500?

We can see the VIX coming down from its all time recent highs.  The VIX needs to fall further before we get a sustained rally.  We can gather two things from the red line period (1) it was a lower volatility period than we have seen over the last 18 months (2) the S&P 500 experienced a multiyear bull market during that period.

 

What is the VIX? The CBOE SPX Volatility Index reflects a market estimate of the future volatility, based on the weighted average of implied volatilities for a wide range of strikes.

 

Staggering S&P 500 earnings drop will put more pressure on dividends and credit ratings

 

S&P 500  earnings sank 82% in 2008 (including write downs).  This is below the previous 1991 low.  The Q4 2008 loss of $23.03 a share was bigger than the best quarterly profit of the past 20 years (Q2 2007 $21.88).  This staggering earnings drop will lead to more dividends and credit ratings being cut.

 

The future of the dollar? Will we get an Obama bounce?

In the middle of this economic meltdown the dollar has had a few mini rallies.  The chart indicates we may get an Obama rally.  I’m not convinced.  Broadly here are my concerns (1) True costs of the stimulus and bailouts (2) The overall debt of the USA (3) The health of Euro and other major currencies and (4) The possibility of increased inflation over the next few years.

American Ingenuity – Like No Other!

What’s your net worth?