I am a long-term member of the American Association of Individual Investors (AAII) and this month's AAII Journal has very good coverage of target date mutual funds. These can be useful as default choices for smaller accounts such as a new 401k account or a custodial account since all the rebalancing and allocation adjustments are done by the mutual fund company.
The five mutual fund families reviewed are American Century, Fidelity, Schwab, T. Rowe Price, and Vanguard. The article discusses the important facts that you need to consider when choosing a target date fund. If you would like to see the article, email me: richc@feesonly.com with Target Date Funds article in the subject line. I won't use your email for anything else.
BTW, AAII is a wonderful organization. If you are interested in an unbiased education in investing and personal finance, join and attend the monthly local chapter meetings and read the monthly AAII Journal. AAII is a non-profit and they accept no advertising.
Monday, June 15, 2009
Friday, June 12, 2009
Home Equity Loans - Pros and Cons
A home equity line of credit (HELOC) used to be easy to get and probably will be again once the mortgage mess clears up and home values begin to appreciate.
Having a home equity line of credit can be useful for emergencies especially since using it costs so little. The interest rate on mine is 2.25% currently. Instead of using a margin loan at Schwab, I took out a loan against the equity line saving about 5%.
The trick with using the equity line is to make the interest deductible. Most of you know interest on the first $100,000 of a home equity loan is deductible. What you may not know is that the interest is subject to Alternative Minimum Tax (AMT) and since most of my clients are paying AMT every year, then their HELOC interest is not reducing the income taxes owed.
One way to avoid the AMT issue is to use the home equity loan proceeds for something that makes it deductible. Examples are:
A few more pitfalls:
Having a home equity line of credit can be useful for emergencies especially since using it costs so little. The interest rate on mine is 2.25% currently. Instead of using a margin loan at Schwab, I took out a loan against the equity line saving about 5%.
The trick with using the equity line is to make the interest deductible. Most of you know interest on the first $100,000 of a home equity loan is deductible. What you may not know is that the interest is subject to Alternative Minimum Tax (AMT) and since most of my clients are paying AMT every year, then their HELOC interest is not reducing the income taxes owed.
One way to avoid the AMT issue is to use the home equity loan proceeds for something that makes it deductible. Examples are:
- use the proceeds for rental property
- use the proceeds for investment
- loan the proceeds to your LLC or corporation
A few more pitfalls:
- home equity loan interest is not deductible to the extent that all the home loan debt exceeds the fair value of your home
- itemized deduction phaseouts may reduce the value of the HELOC interest deduction even if you are not subject to AMT
Thursday, June 4, 2009
Ridiculous Headline: "Investors beware: Rally may not last, MFS strategist says"
Today's ridiculous headline implies that investors should beware and that the rally may not last.
This information is useless. Investors (we assume they mean stock market investors) should always beware. Stock market investments are volatile and may go down a lot with no notice. Similarly they may go up for no apparent reason. It's unpredicatable. The rally may not last? Of course it may not last. If the author had any guts he would say it won't last, not it may not last.
More quotes from the article:
“We may be on the way to a secular bull market,” Mr. Swanson said. “But I think the sustainable bull market will begin during the summer sometime. This may not be it. It could be liquidity driving stock prices up. Investors should be wary."
Totally useless. The bull market may begin in the summer? It's June 3rd. Summer starts in 17 days!
Yeck, ignore this kind of useless blather.
This information is useless. Investors (we assume they mean stock market investors) should always beware. Stock market investments are volatile and may go down a lot with no notice. Similarly they may go up for no apparent reason. It's unpredicatable. The rally may not last? Of course it may not last. If the author had any guts he would say it won't last, not it may not last.
More quotes from the article:
“We may be on the way to a secular bull market,” Mr. Swanson said. “But I think the sustainable bull market will begin during the summer sometime. This may not be it. It could be liquidity driving stock prices up. Investors should be wary."
Totally useless. The bull market may begin in the summer? It's June 3rd. Summer starts in 17 days!
Yeck, ignore this kind of useless blather.
Tuesday, June 2, 2009
Highest and Best Function of an Investment Advisor
"Consider the possibility that the highest and best function of an investment advisor isn't economic commentary or market prognostication, but simply in saving his clients from the media...and from themselves." Nick Murray
Diversification - Always in Style
In a bear market as severe as ours, all the nuts come out. You can read about how buy and hold is dead and how asset allocation doesn't work.
Recently an article in Wealth Manager caught my eye, one paragraph in particular that summed up the asset allocation issue nicely.
"Since the end of 2007, the broad-based fall in equities has drained a mind-numbing 30 trillion of value from the stock market. Worse yet, amid the economic meltdown of 2008, investors were punished across essentially all asset classes -- regardless of the level of diversification. Not surprisingly, then, reasonable people have been asking the question: Does diversification still work? Yes, and unequivocally! It's just not a hedge against short-term loss." - J. Gibson Watson III
Roger Gibson is a very famous (to us) asset allocator. He has several books worth reading. My favorite for clients is "Simple Asset Allocation Strategies: Easy Steps for Winning Portfolios". You may need to search for a used one as it may be out of print.
Recently an article in Wealth Manager caught my eye, one paragraph in particular that summed up the asset allocation issue nicely.
"Since the end of 2007, the broad-based fall in equities has drained a mind-numbing 30 trillion of value from the stock market. Worse yet, amid the economic meltdown of 2008, investors were punished across essentially all asset classes -- regardless of the level of diversification. Not surprisingly, then, reasonable people have been asking the question: Does diversification still work? Yes, and unequivocally! It's just not a hedge against short-term loss." - J. Gibson Watson III
Roger Gibson is a very famous (to us) asset allocator. He has several books worth reading. My favorite for clients is "Simple Asset Allocation Strategies: Easy Steps for Winning Portfolios". You may need to search for a used one as it may be out of print.
Peregrine falcon fledglings
My earlier, May 13 post about banding has turned into all 3 of this year's nestlings having fledged. This is a shot of Liwa, a female that has landed on a window ledge on a building near the nest site (in San Francisco).Volunteers keep watch for about 2 more weeks in case the fledged bird ends up on the ground and unable to get back into the air. The parents continue to feed them and teach them how to hunt during this period. Then the fledglings are on their own and usually disperse geographically.
To see more about the group that follows these magnificent birds: http://www2.ucsc.edu/scpbrg/index.htm
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