blog16sep2007

Hot Off the Web
First, there were a couple of interesting articles on Florida’s discriminatory two-tier property tax front; one is potential good news and the other, is bad news materializing, as expected. BusnessWeek’s “Shaky times for munis” reports that the U.S Supreme Court is expected to rule on the constitutionality of the State of Kentucky taxing their residents’ muni bond income from other states, but exempting income from bonds issued in Kentucky . Kentucky’s own court ruled that this exemption is discriminatory, and the state is appealing the decision to the Supreme Court. This dispute has similar elements of discrimination to the discriminatory property taxes in Florida (though there are distinctions in whom/what is affected), so a decision against Kentucky, may bode well for Florida snowbirds as well. The bad news reported in the Palm Beach Post’s “Cities in Palm Beach County overriding state-mandated tax cuts” is that various cities started overriding the state-mandated tax cuts; predictably, even the meagre tax cuts expected by many will not be realized. Those who were fortunate or unfortunate to have had significant property value drops and the drops were recognized by the Property Appraiser, then they still may have a tax reduction.
In “Her golden years a mixed blessing” Financial Post’s William Hanley points out that women may live longer than men, but not necessarily better. Women must prepare with more rigour for retirement, since currently single women retire with fewer assets, yet they live longer in retirement. He refers to Hovanec and Shilton’s “Redefining Retirement: New Realities for Boomer Women” who point out that women must focus on the spending side, not just income, and many will have to plan to live on 50% of pre-retirement income (rather than 70% number bandied about generally).
In “Can active, passive get along together” Rob Carrick talks about Barclays latest pitch that active and passive styles can coexist. He rightly sees this as a pitch to active investors to also include a passive component in their mix, and thus get the benefit of low cost in the passive portion but pay the higher fee for the (potential excess return) alpha. But he doesn’t sound convinced (or convincing) of the benefits of adding the active approach.
Tim Cestnick explains in the Globe’s “Pay tax on your gains over five years”  how using “capital gains reserve” permitted under Canadian tax law, one can pass one’s cottage to one’s children at market value in exchange of properly worded promissory notes. The promissory notes don’t have to be called for payment, and tax can be paid as (unpaid) notes come due.
Rob Carrick in Globe and Mail’s “Extended mortgages keep housing markets pumped”  describes the new trend of house buyers reaching to buy houses otherwise out of their reach using even 40 year amortization mortgages. Does not sound like a sensible approach when many are predicting that housing prices have peaked and the difference between a 30 and 40 year $250,000 mortgage is only about $64/month according to Rob ($731 vs. $668), yet it adds $65,000of interest cost over the life of the loan. If that last $64 is the straw that breaks the camel’s back, then perhaps one is reaching too far.
In WSJ’s “Volatile markets add lustre to dull choices”  P.Q. McQueen describes how the recent market turmoil is driving some investors into immediate fixed-income annuities and whole-life insurance products in what the author calls “misguided flight to safety”. People are looking for guarantees, but guarantees are come at a high cost! I won’t reiterate the challenges and the cases when annuities may be appropriate, as I have done this in the four annuities related blogs that I have recently done, the last of which was Annuities IV .
WSJ’s Ian Salisbury discusses who is behind the massive ETF trading volumes and the impact on small investor in “Behind all the ETF trading”  . According to Salisbury professional investors (pension funds, hedge funds) are behind the massive volumes of buying and shorting of the most popular ETFs, yet this activity has little impact on the small investor due to the structure of ETFs, whereby the redemption/creation mechanism associated with ETFs insures that the trading costs are borne by the traders rather than the fund; also arbitrage insures that that the ETF price won’t drift significantly away from the price of the underlying securities.
Richard Croft in Financial Post’s “Longevity ultimately leads to success” warns the reader that one strategy likely works as well as another. The problem is that investors tend to follow whatever is being currently hyped, which is usually after the strategy has just peaked (i.e. driving by looking into the rear-view mirror). He advocates, in a very consistent fashion if you read his articles, that what counts is the portfolio and is it consistent with the investor’s risk tolerance; if yes, the investor will be able to stay invested even when market turmoil hits, and what counts is staying invested for the long term.
Jonathan Clements list of “Six bad reasons not to save for retirement”  in WSJ includes excuses such as: plenty of time left (earlier start means less required saving a year), house value (you have to have significant appreciation and you have to sell it to make it a spendable asset), investments doing great (is it sustainable?), expected inheritance (only a very small fraction of all estates substantial enough to make a difference), pension (many expect it but few still/will have a defined benefit plan) and plan to work in retirement (how realistic is this for health and work availability reasons)
And finally, in “ETFs seek room in your 401(k)”  WSJ’s Gullapalli reports that ETF providers are being excluded from being on 401(k) menus by retirement plan administrators who happen to also be the largest mutual fund providers. These mutual fund providers and 401(k) administrators claim that there are no advantages to ETFs in a tax-deferred account (if you overlook the lower annual costs). The author suggests that ETFs will become bigger players in the 401(k) space with: the introduction of target-date mutual funds (based on ETFs), ETF providers gradually becoming 401(k) administrators and if plan sponsors start demanding ETFs.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: