Sunday, July 06, 2008

Retirement Saving

This will warm the large ventricles of your heart:

... Adjusted for inflation and dividends, the return on the S&P 500 was negative for the decade that ended on June 30.

During this lost decade — which colleague E. S. Browning wrote about back in March — commodities, bonds and even cash were better investments than stocks, Merrill Lynch chief investment strategist Richard Bernstein pointed out in a note on Friday.

It was the first ten-year stretch since the early 1980s -– not coincidentally, the tail end of a prolonged bear market – in which stocks generated a negative real long-term return, Mr. Bernstein noted ...

Over the past few months, various participants in the union 401(k) Plan have complained about the crappy returns. I totally sympathize. It's depressing to see your investment totals decline week by week, even as you're dumping two or three hundred bucks into the investments every payday.

When the market's going south, it's hard to keep saying: "I'm buying more shares at lower prices ... I'm buying more shares at lower prices ..." The pain of seeing smaller dollar totals trumps the tiny joy of purchasing bargains.

Face it. About all you can do in a market downdraft is ride out the bad times and make sure you've allocated investments in a way that makes sense for your career track: More stocks if you have a long ways to go before retirement; more bonds if you don't.

Morningstar's Guide to Mutual Funds has a lot of sage advice in 275 easy-to-read pages. I offer samples of its opinions regarding different mutual funds:

American Century -- A.C. is best known as a shop that uses computerized models to pick growth stocks ... It's a no-load fund family. American Century's expenses aren't the lowest around, but the firm has worked to keep its trading costs as low as can be.

Strengths: A.C. is a classic B student. Although only a few of the firm's funds would make the top of our buy lists, most of the funds are respectable.

Weaknesses: A.C. has improved fundamental research capabilities, but it still has a ways to go before it can stand with the best on that front ...

Harbor Funds: A division of Dutch asset manager Robeco, Harbor doesn't offer index funds, but it does offer moderate-cost actively managed funds run by oustanding subadvisors.

Strengths: Harbor Bond is run by fixed-income superstar Bill Gross, making it the cheapest way for no-load investors to gain access to the brain trust at PIMCO funds.

Weaknesses: Expenses on the retail shares of Harbor Capital Appreciation and International could be lower given their sizable asset bases.

T. Rowe Price: This fund family offers mild-mannered style specific funds. You'll find that T. Rowe Price's funds are among the more conservative options in just about any category ...

Strengths: Fine offerings across the board. Its Equity Income fund is one of our favorite large-value offerings.

Weaknesses: T. Rowe's core bond offering, New Income, is an extremely competent fund, but it's not in the very top tier of intermediate-term bond offerings.

Vanguard: Its funds are invariably dirt-cheap, typically founded on prudent investment strategies, and run by a cast of experienced managers.

Strengths: For index funds, bond funds, and tax-amanged funds, Vanguard is tough to beat. The firm boasts some great actively managed funds, too.

Weaknesses: Aside from the solid Vanguard Explorer, a small-growth fund, Vanguard doesn't have a lot to offer in terms of actively managed small-cap funds.

The problem with any investment strategy is, you can end up kicking yourself as you look backward to where the market actually went, and what you should have done.

My advice is, don't go there. Second guessing the performance of stocks and bonds will always make you crazy. When it comes to investment strategies, Warren Buffet has a few thoughts on the matter (and where does he get off?):

“Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

And ...

"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals."

None of the above is new with Mr. Buffet. He has said the same things over and over for decades. And just so you know, we plan to add more lower cost index funds to the TAG 401(k) Plan in the relatively near future.


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