Cartoon: Financial Advisor

Paying For Financial Advice

A quick review of each shows their strengths and weaknesses.

2% & 20% is primarily used by hedge funds. You pay a hefty premium plus one fifth of your profits for the privilege (many funds have an extended lock up period as well). Unfortunately, performance at funds has been lacking.

Bottom line: Top managers earn their fees, but the rest, not so much. If your manager(s) are making you outsized profits and avoiding the crackups, stay with them. Otherwise, rethink the fees you pay for under-performance

Commission driven is my least favorite of all the structures. Fees tend towards 4 or 5%, as brokers must constantly spin assets to generate revenue.

Bottomline: I simply do not understand how this business continues to exist . . .

Percentage basis is my preference how to conduct fin planning (and how I do my asset management work); Adviser is on the same side of the table as the client — no commissions, no compromised payments, no legal kickbacks from 3rd parties. If I am doing my job, I am helping clients plan for the future, avoid major drawdowns where possible, and capture upside.

Bottomline: Work with someone you are comfortable with to develop a plan for you; you should be able to tap someone for advice on a wide range of finance related issues. Your job is to manage someone else who does the day to day work.

Flat rate is a business model that I believe warrants further exploration. It has typically been used for accounts sized under $500k; Numerous firms offer this; they all seem bedeviled by under-performance and de minimus customer service. I believe this is an area that has potential for huge growth if someone can figure out a way to radically improve the performance problem.

Bottomline: One day . . .

Do it yourself is something I have long advocated for, but with some caveats: Dollar cost averaging into a handful of broad indices on a monthly basis is how you start; overlay a risk management approach (like the 10 month moving average) and you are onto something very doable. The downside is your own cognitive biases, the tendency to be overwhelmed by the daily noise, and a lack of discipline in following through on your own plan.

Bottomline: Very doable if you know who you are and have the ability to follow through.

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Cartoon: I Can Die Debt Free

Investing Choices

Cartoon: Retirement

Personal Spending by Category

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Cartoon: Cracking the Nest Egg

S & P 500 P/E Ratios

Interestingly, in 1981 the stock market was in a kind of a funk and the Price/Earnings ratio was hitting about 7, which is on the low side, whereupon (thanks to Congress authorizing tax-deferred retirement accounts in 1982) the stock market proceeded for the next 20 years or so, in fits and starts, to rise to, stunningly, a P/E ratio of almost 30 in 2000, whereupon it promptly turned over and has been falling, in fits and starts, for the last 10 years as the price of the S&P went down. Wow! What a ride!...

I say this because the historical record is crystal-clear: When the P/E ratio goes above 22 or so, it won’t be long until the price of the stock falls enough so that the Price/Earnings ratio is back down in the upper teens in a bull market, and back down to around 5 in a severe bear market, whereupon it won’t be long until the price rises again on its way to “overvalued” status. That’s the nature of cycles...

And, with special emphasis to in-laws everywhere, anyone buying a broad basket of common stocks and bonds, but not buying gold, silver and oil to protect themselves against the roaring inflation in consumer prices that will result from an idiot Federal Reserve creating massive amounts of money so that the government can deficit-spend those massive amounts of money, is a moron.

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Cost of Retirement

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Cartoon: Personal Finance

Consumer Finances

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43% Have Less Than 10K for Retirement

The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday.

The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

Workers who said they had less than $1,000 jumped to 27%, from 20% in 2009.

Confidence in ability to save enough for a comfortable retirement hovered at 16% of respondents, the second lowest point in the 20-year history of the survey.

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Cartoon: Living Within Your Means

Cartoon: Retirement

How to Avoid Debt

Another Reason to Save and Invest

Barbara Harvey climbs into the back of her small Honda sport utility vehicle and snuggles with her two golden retrievers, her head nestled on a pillow propped against the driver's seat.

A former loan processor, the 67-year-old mother of three grown children said she never thought she'd spend her golden years sleeping in her car in a parking lot.

"This is my bed, my dogs," she said. "This is my life in this car right now."

Harvey was forced into homelessness earlier this year after being laid off. She said that three-quarters of her income went to paying rent in Santa Barbara, where the median house in the scenic, oceanfront city costs more than $1 million. She lost her condo two months ago and had little savings as backup.

read the CNN story

Man Fired Over Dilbert Cartoon

A man was fired when he posted this Dilbert cartoon.



Scott Adams, the creator of Dilbert, is taking up his cause in a new series of cartoons and on his blog.








The issue in the strip with be resolved with a “deus ex machina.” "It refers to a bad writer’s trick of having some improbable character arrive at the end of a story and conveniently solve all the problems." Scott Adams

Unfortunately, the real life incident with be slightly more complicated to resolve.


Note: This post relates to SSEPF6a of the GPS for economics.

Personal Finance: 401(k) Info

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Interview with Jim Rogers

Excerpts from a interview with Jim Rogers

RESOURCE INVESTOR: Jim Rogers started the Quantum Fund with George Soros a couple of decades ago, probably three decades ago actually. He’s a legendary investor. He’s a bestselling author and he’s a prolific commentator and never a day goes by when you don’t see him on Financial Times Television or Bloomberg or listen to him on the wireless and he’s on the wireless now.

Jim, before we get into what’s happening with commodities, which is one of your favourite subjects, what do you think about the recent market action?

JIM ROGERS: Not very surprised. I’m just – the only surprise to me is why didn’t it start sooner. I’m afraid we’re going to see much worse before the year’s over. America’s going to be in its worst recession for some time. We’ve had the worst housing bubble we’ve had in American history, maybe even world history. So, unfortunately, it’s not good news. There’s still many problems to be revealed and more losses to be taken.

...

RESOURCE INVESTOR: Yeah, I’ve been writing an article on Allan Greenspan and his tenure for a local magazine, Jim, and I’ve been surprised at looking at some of the quotes that have been attributed to Greenspan ever since he took over as Fed Chairman in 1987. I’ll just read one to you if I may briefly. It says – he said the following back in 2003, 2004, “Innovation has brought about a multitude of new products such as sub-prime loans and also niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country. With these advances in technology, lenders have taken advantage of credit scoring models and other techniques of efficiently extending credit to a broader spectrum of consumers.” I mean the more I read about Greenspan, the more I realize he’s at the root of our current problems.

JIM ROGERS: Oh no, of course he is. I mean he’s laid the foundation for the demise of the Federal Reserve. Between Greenspan and Bernanke, we may see the Federal Reserve fail. We’ve had three central banks in America. The first two failed. This one’s going to fail too. I mean if you really – we could spend a whole program, a whole year of programs, reading quotes from Greenspan and you would realize what a fool he’s been...

RESOURCE INVESTOR: Yeah, let’s do. But briefly, before we leave the subject, do you think that Bernanke is just going to become another Greenspan?

JIM ROGERS: He’s worse. All he knows is to print money. His whole intellectual career has been spent studying the printing of money. America’s now given him the printing presses and all he knows to do it to run them. He doesn’t know about markets. He doesn’t know about foreign currencies. We know now he doesn’t even know about economics. I mean, he’s got a PhD in economics and he was a professor of economics, but he doesn’t have a clue about economics...

So the man doesn’t even understand economics. He’s going to print money. He’s going to throw money out the window. The dollar’s going to go down further and further and further. Inflation’s going to get worse and worse and worse throughout the world – the world, not just America - and we’re going to have a worse recession in the end.

RESOURCE INVESTOR: He says that the inflation problem is a lesser problem than a slow-growth cycle. What would be your comment on that analysis?

JIM ROGERS: Well, no. You know better than that. Inflation damages everything. It distorts all economic planning, all economic decision making. A slow economic profile or whatever he called it – we get over recessions. They end. But once you start embedding inflation into the entire nation’s economy, that’s one thing. Then it changes everything. It changes currencies. It changes foreigners’ perceptions of their own economy, their own currency, their own cost of doing business...

...

RESOURCE INVESTOR: Jim, if you want to get into the agricultural market, what is the most efficient way to do it if you don't have the wherewithal to be able to utilize, you know, the Chicago Board of Trade and things like that. Are there indices that one should look at without having to monitor them every day, a simple way of getting in, in other words?

JIM ROGERS: Well, Lindsay, I mean many academics and many consultants have demonstrated over and over again the best way for most people to invest in anything, stocks, currencies, whatever, is through an index. I’m not the first to come up with that and you either. That’s been demonstrated too many times. People who invest in indexes outperform 80% of active fund managers year after year after year.

So the best thing for most people to do is buy an index. I mean first do your homework and decide, “Yes, I want to buy stocks. Yes, I want to buy American stocks. Yes, I want to buy commodities,” whatever it is. And then if you decide you want to buy that asset class, the best way to invest, no matter what the asset class, is to buy an index.

read the entire interview

Jim Rogers is an investing expert.

64 Interview Questions

How to answer questions like:

• What are your greatest strengths?
• Why should I hire you?

plus 62 others

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