Hot Off the Web – December 14, 2008

The Financial Times’ Len Costa writes that the “Crisis throws rebalancing out of kilter” In the article he discusses how “the prospect of selling winners and buying into falling markets can test even the most resolute investor’s faith in asset allocation and the utility of diversification.” However rebalancing is “one of the few things that you can do to take advantage of declines in asset value.” (In times great market discontinuities you may wish not only to revisit your strategic asset allocation, to make sure that the carnage has not changed your risk tolerance (i.e. ability and willingness to bear risk), but perhaps also consider using a tactical asset allocation; this may reduce the rate at which you rebalance your portfolio). On the same topic Barron’s Karen Hube in “A ship-shape retirement” reminds those who are still approaching their retirement to stay focused on the goal. And while they may have to save a little more each year and/or work a couple of years longer than planned, asset allocation is still the big picture you must start with. One suggestion for those sitting on the sidelines in cash is to move 25% of the allocated amount to stocks back into the market now and the rest over the next 12-18 months.

The Financial Post’s Jonathan Chevreau reminds his readers to “Make up for the crash with tax-loss selling” You must act by December 24 to insure that trade settles before the year-end to take advantage of opportunities in your non-registered accounts, keeping in mind the superficial loss tax rule and perhaps covering yourself against missing out on market rebounds by buying a similar security during the 31 day period when you can’t repurchase the identical security. (The crystallized losses are then available to offset past and future capital gains.)

The Globe and Mail’s Rob Carrick discusses this year’s complications for seniors wishing to take advantage of the announced 25% reductions in minimum RRIF withdrawals in “RRIF relief can still be elusive for seniors” The bottom line is that if the announced changes stick, you’ll have the opportunity to put the 25% back into the RRIF next year.

Anne Tergesen discusses “How to fix 401(k)s”(and many of the ideas are applicable to RRSPs and Canada’s pension plans) in her WSJ article. The problems are numerous: limited access, inadequate guidance for sound decisions, risk shifted to individuals, etc. The good news is that the there are many opportunities to repair and re-architect the pension system and hopefully 2009 will be the year when the legislators (in Canada as well) will realise that the time to act is now!

Ken Kivenko’s “Investor protection”  article at Canadian Fund Watch runs through a litany of instances where “Billions of dollars were lost to unsuitable investments in 2008, excessive fees and leveraging, misleading marketing, fraudulent funds and crooked advisers and brokers.” There must be some lessons in there for 2009.

More lessons from Lieber and Siegel-Bernard in the NYT’s “Be smart- But don’t think you’re special” that can be learned from this week’s “fraud scheme that may be the biggest in Wall Street history”. Many wealthy and (therefore assumed to be) sophisticated investors appeared to have lost everything in the $50B Madoff fraud (larger than the Enron one) and may become paupers as a result. Some of the lessons are: (1) don’t invest more than 5% in any investment, (2) humility (index funds instead of hedge funds), (3) smarts/research (no shame in admitting your ignorance, too often your advisor doesn’t understand what he is recommending either), (4) secrets (hedge fund secrecy to preserve proprietary tactics also prevent visibility of potential foul play.)

WSJ’s Nortel seeks legal advice on exploring bankruptcy was a sad day for current and ex-Nortel employees. The implication on pension plan members is difficult to determine as yet, but those who have read my earlier blogs on pensions may have a sense on the range of possible outcomes. A CAW note on potential pension outcomes in bankruptcy may also be of interest. (If losses are incurred by pensioners in this case, these will not be a result of their own doing, but likely a mix of incompetence and/or inadequate fiduciary oversight by corporate management/board, professionals (trustees, actuaries, investment advisors, etc) and regulators.) Let’s hope that the right steps are taken immediately by all involved (including legislators) to protect the pensions (which are the deferred wages) of retirees, many who spent their entire working lives working at an employer.)

And finally, In the WSJ article “No time like the holidays for family business”, Tom Lauricella discusses the opportunity presented by the holiday family gatherings to discuss with aging parents uncomfortable topics like retirement finance (e.g. impact of massive stock losses), health status (opportunity for children who don’t regularly see their parents to observe changes in their parents’ physical (how they walk/shuffle or drive), mental (memory)), share with children location of estate planning documents, healthcare directives, and discussion of potential move to assisted living facilities. Certainly sounds like good reminder.


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