blog14oct2007

Hot Off the Web
WSJ’s “New funds for retirement payouts” reports the arrival of ground-breaking funds from Fidelity and Vanguard. What is different in these funds is that the annual payout is variable. Fidelity family of funds with target dates of 2016 to 2036 have payouts that are an increasing percentage of the investors’ remaining assets, until they are exhausted at the target date. Vanguard’s upcoming funds are more like an endowment, that theoretically could last forever, and they come in three flavours 3, 5 and 7% of three year rolling average value of assets. The WSJ notes that “Of course, you could do this yourself. But most people don’t want to pick an asset allocation, choose funds, set up automatic withdrawals and rebalance every year.” These type of funds are ground braking, in that they’ll remove pressure from retirees to choose (high cost and inappropriate asset allocation mechanisms like) annuities as the only low maintenance retirement income approach and they will no doubt form the basis of the next generation pension plans (see my recent blog on Pension Reform ) together with compulsory participation and shared longevity risk mechanisms like longevity insurance (e.g. at age 65 buying a single payment deferred annuity which to start income stream, if you are alive, at age 85). The fees are less than 0.65 and 0.34% for Fidelity and Vanguard funds, respectively, though not clear (but I suspect) that these are on top of the fees associated with the funds underlying these offerings. (These unfortunately are not available to Canadians, but hopefully eventually similar products will)
Another interesting development is reported by the WSJ in “ETF Life-Cycle funds: Low fees, tax efficient” , whereby new TDAX Independence 2040 ETF (TDX) started trading on NYSE. This new ETF is not only a new (first) implementation of Target-date ETF funds, but it is also unusual in that it starts with 96% stock allocation, dropping of to 10% at target date and increasing to 30% thereafter. According to author, the most conservative asset allocation at the target date allows investors to pull out their money if they wish at that point.
The good thing is, as I recall Winston Churchill having said, that the “The Americans will always do the right thing… after they’ve exhausted all the alternatives”. Here we go again on the property tax front, the Miami Herald reports that “Smaller property tax deal likely to pass” . According to the erticle “The centerpiece of the plan, first proposed by the governor and Senate Democrats, is ”portability,” which would allow people to take their tax-exemption protections from one home to a new one. It also doubles the $25,000 homestead exemption, gives first-time Florida home buyers an additional permanent exemption and leaves school taxes untouched.” I seem to recall a few months ago, when the last special legislative session on property taxes took place, the legislatures own internal legal opinion was that portability will not likely survive a constitutional challenge; so why go ahead with it now? Perhaps the politicians concluded that they ran out of options that they can sell to voters, so they’ll let the courts shoot it down, opening a new chapter for property tax reform (I am probably over-rating their insight, if not their cunning.) Renters/ business may be getting some scraps as well, but no mention of snowbirds. My back of the envelope calculation for PB County is that the end result may be a further transfer of the tax burden to snowbirds of $500-1000 per taxed residential property per year. ($25,000 additional exempt at 2.3% PB mil rate saves $575 for homesteader if expenses stay fixed, with about 1/3 of property in PBC being non-homesteaded) The good (?) news of course is that property values in FL have “dropped like a rock”, so actually tax increase will be (temporarily lower).
Globe and Mail’s rob Carrick reports in “The Claymore alternative”  the availability of two new wrap ETFs Claymore Global Balanced Income (CBD) and the Claymore Global Balanced Growth (CBN) with 0.7% annual management fees (including MERs of underlying fund components), somewhat high for ETFs but much lower than comparable brokerage offered wraps at 2.5%.
Jeff Opdyke discusses how “Adviser turnover roils investor”  in the WSJ. When financial planners retire or sell their practices, you may get assigned to a new advisor potentially at a new firm. Things to look for in addition to changes in fees are: (1) chemistry with the new planner (this is a relationship business), (2) what is the applicable standard used for your account-suitability (brokerage relationship does not have to put client’s need first) or fiduciary (registered investment advisers must put client’s interest first). Still on advisors, Financial Post’s Jonathan Chevreau discusses the value that they bring to the investment process in “Go it alone and have a fool for a client” . Advisors help navigate in rocky markets and overcome the fear and greed tendencies of investors, and provide an integrated financial plan. The challenge is finding the right planner.
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