Similarly in WSJ’s “Five lessons from a wild first half” recommendation are similar: (1) have an asset allocation plan (consistent with your risk tolerance)and stick with it, (2) increase savings by automatic upfront deduction at least to the maximum permissible amount under tax-deferred savings accounts (401(k)/RRSP)and don’t (plan to) withdraw more than 4% of assets per year, (3)control risk and don’t be greedy, if you achieved your retirement objective and you are close to or in retirement don’t exceed equity component of 35% in the portfolio (I am a little less conservative than that), (4) minimize cost (as you have heard here incessantly), (5)limit your employer’s stock to 10% of your portfolio, otherwise your retirement saving could collapse just as your job is about to be eliminated.
With the growing popularity of ETFs, hundreds of new ETFs have been launched in the past few years. However, each ETF must gather at least $50M of funds to break even. With more and more funds with similar/identical objectives and many in narrower and narrower niches, 2008 is expected to see the demise of many ETFs. In WSJ’s “ETF death watch” the writers indicate that about 180 of the almost 800 ETFs originated in the U.S. have less than $10M assets and many of these are likely candidates for liquidation, but few small investors are likely to be hurt. On elimination, investors may end up with unplanned capital gains or losses, and within a few days after the ETF stops trading you should get your money.
On a more sobering note and looking a little further into the future, Tobias Levkovich writes in the Financial Times that “Challenges lie ahead” . Over the next 25 years investors may be facing “far more interesting and challenging” world due to: lower earnings margins compared to current high levels by historical standards, lower valuations due to higher inflation and interest rates, and “ the end of American global predominance, particularly if commodity strength and dollar weakness endures”.
Eleanor Laise discusses foreign currency and inflation impact on investments in WSJ’s “Dollar dealings” . Some of the recommendations include to continue holding international stocks even though the (U.S.) dollar has bottomed against the Euro, if not against Asian currencies, though you may want to lighten up on international bonds. As far as protection against inflation the recommendation is still “hard” assets like commodity funds, international real estate (e.g. RWX) and non-dollar denominated inflation-protected securities (WIP), though their prices have been driven up by recent demand.
Jane White in Barrons’ “Do you have a retirement parachute?” decries the fact that there is inadequate information provided with 401(k) (or RRSP) statements about retirees real needs for a comfortable retirement and the required corresponding savings rate. She indicates that average 65 year old retirees, without a defined benefit plan, need a minimum savings of 10x their pre-retirement income available at retirement. She tables Australia “with a forced contribution rate of 9% of salary from all employers, along with much higher limits for employee contributions than Americans”, as model for Americans (and Canadians) to emulate. (Hear, hear! You can also see other countries way ahead of us in this area by reading my recommendations to the Ontario Expert Commission on Pensions or the recent C.D. Howe paper on the subject by Ambachtsheer)
And finally the latest issue of the BussinessWeek has a series of retirement related articles that you may wish to peruse, such as:
“Spending safely” which discusses rate at which you can draw from your portfolio during retirement and not surprisingly suggests approaches which allow flexibility and are a function level of market valuation at retirement.
In “How to enjoy a scam-free retirement” they warn about: “free lunch” seminars (somebody is selling something), people encouraging you to cash in your pension and invest it with them instead, also it may be cheaper to stay with your employer’s 401(k)(RRPS) than perhaps taking the cash to a broker, consider tax consequences of any major asset shift, check the costs associates with variable annuities (and universal life policies, guaranteed minimum withdrawal benefit plans and for that matter mutual funds!) They also include some useful websites on “broker searches for past transgressions, information on cash-outs, reviews of seminar materials, and investing tips and explanations of financial-adviser designations.”