Surprise?!? “The index funds win again” The NYT article by Mark Hulbert reports that in a new study by Mark Kritzman he concluded that over a hypothetical 20 year period passive returns of 10% outperform active mutual fund returns of 13.5% and hedge fund returns of 19%, once you factor in turnover rates, transaction fees, management and performance fees, and (long and short term) taxes; the after expense returns ended up to be 8.5%, 8% and 7.7%. The problem is aggravated not just because such outperforming funds are rare, but you must identify them a priory. (Good luck!) “The investment implication is clear, according to Mr. Kritzman. “It is very hard, if not impossible,” he wrote in his study, “to justify active management for most individual, taxable investors, if their goal is to grow wealth.” And he said that those who still insist on an actively managed fund are almost certainly “deluding themselves.” “(Note the qualifiers: “individual taxable”, since a lot of the success associated with hedge funds in particular were reported by institutional investors, like endowments and foundations.)

Ron Lieber writes in the NYT that “Not all Certificates of Deposit (CDs) are plain vanilla or safe” .  Lieber warns that not all CDs (the U.S. equivalent of GICs) are insured automatically by FDIC; an example is the latest alleged scam by Stanford’s offshore bank. Also, maximum coverage is $250,000 until the end of this year, when it reverts to $100,000. In addition to the basic CDs, there are brokered CDs, indexed CDs and foreign currency CDs with their own peculiarities that you must pay attention to.

AsianInvestor’s Jame DiBiasio reports in “India’s new pension system redefines scale” about a new pension system aimed at 400M unorganized Indians. Some of the plan elements include: low cost, distribution points (banks and insurance companies), external fund managers, based on indexed (initially domestic) equities and bonds, default option to life-cycle option for those who don’t choose. DiBiasio lists flaws as well: no tax incentives and compulsory annuitization of 50% of the funds. (Not perfect by any means, but when will Canadians have access to a national pension system, other than the minimal CPP/QPP?)

WSJ’s Jilian Mincer discusses what you can do to improve your credit score in “Credit-score pitfalls of the wealthy” . Among the suggestions are : annually request and review of your credit report (free), then the obvious like pay your bills on time, to the counter-intuitive like don’t cancel bank card once paid off and do use your credit card occasionally even if you don’t need it.

In “The inside story is that there is no story” the Financial Times’ John Dizzard discusses the urgent need reform of credit rating agencies. “The direct conflict of interest created by having the issuers of securities pay the people who are rating their creditworthiness has been clear for years. The effects of that conflict, including the insolvency of “investment grade” issuers, contributed heavily to the present crisis. There have been hearings, op-eds, speeches, and denunciations, all to this effect.” There is no sign of action from the SEC since they are in damage control mode following the Madoff fiasco.

Tim Cestnick in the Globe and Mail’s “Reassess your RRSP strategy” suggests that this is the year to re-evaluate your risk tolerance, make sure to keep your fixed income allocation in the RRSP, and if you expect an increase in your future marginal tax rate you can defer applying your RRSP tax deduction to a future year, among other suggestions.

In Financial Times’ “Big hitters stumped by their own egos” John Gapper enumerates similarities between Madoff and Stanford: similarly steady returns, uncharacteristically low fees for what in effect was a hedge fund, audited by “tiny” firms and both firms go by the names of their proprietors. He concludes that “When everything is run by one person, and his name is on the door, you have to hope for the best.”

Globe and Mail’s Rob Carrick provides the “Skinny on fees for tax-sheltered accounts” at online brokers.

Jonathan Chevreau in Financial Post’s “Spread the wealth to your spouse” discusses the growing number of opportunities for income slitting with your spouse. He lists: CPP, pensions, spousal RRSP contributions, TFSAs and inter-spousal loans with current 2% prescribed rate.

In “Rebalancing your toxic assets”the Financial Post’s William Hanley reminds readers that you need a 100% gain to recover a 50% loss. Some analysts still think that we could be in for another 25-40% drop in the market, and while “after the second great(forced) portfolio rebalancing in less than a decade, many people will shun stocks, but they may miss out on the next bull market and, as in past markets, get in only when the best gains have been made.”

Barron’s (you’ll need a subscription to read this one) Alan Abelson looks at the “hole” in U.S. housing. In his “Double trouble”he reports that a couple of key housing ratios are still not near their historically typical values. U.S. house prices to (monthly) rents ratio is at 122 versus the historical range of 90-105, while median house price to median income ratio is at 3.26 as compared to historical range of 2.4-2.8. While housing prices don’t necessarily have to fall to reduce these ratios (rent and incomes could increase), however rising unemployment rates are more likely to drive housing prices down another 20%. (It is difficult to argue with him.)

An finally, in “As losses loom, don’t throw a Hail Mary’”WSJ’s Jason Zweig warns against going for “the financial equivalent of a “Hail Mary pass” — the desperate attempt, far from the goal line and late in a losing game, to fling the football as hard and as high as you can, hoping it will somehow come down for a score and wipe out your deficit.”.  “When you want to recover your losses,” said University of Oregon psychologist Paul Slovic, “payoffs loom larger than probabilities.” And Zweig concludes with wise advice: “Hurling your money at the wildest risks you can find is a bad bet. The best way to recover is by gritting your teeth and grinding out gains one slow, boring play at a time. You aren’t likely to rebuild your wealth through an act of desperation; recovery is a process, not an event. Leave the Hail Mary play where it belongs: on the football field.”