Wednesday, January 25, 2017

Lawyers Target College Retirement Plans

Nancy Mann Jackson wrote an article on January 23, 2017 detailing the challenges colleges face in using their retirement plans to better serve higher ed workers. She writes:
"Eight prominent universities—including University of Pennsylvania, Duke, Emory, Johns Hopkins, Vanderbilt and others—were hit with separate lawsuits in August 2016 alleging the institutions mishandled their employee retirement plans."
"In general, the lawsuits allege the universities breached those responsibilities by offering retirement plans that required employees to pay excessive fees and miss out on extra savings."
As the article mentions, the committees in charge of investments for retirement plans are increasingly offering index options and target date funds to their workers rather than find them in a situation where the offerings include an expensive actively managed fund that underperforms a less expensive index fund option. This is a risk fewer and fewer investors (institutional and individual) are willing to accept. Please read more about the indexing vs active management debate in Barry Rithotz's fantastic piece for BloombergView titled, Shift From Active to Passive Investing Isn’t What It Seems. It was published October 28, 2016 and succinctly summarizes how Bill Miller, a mutual fund manager, views the shift toward lower cost index funds.

Nancy's article, College Retirement Plans Under Attack at is well worth a read if you want to learn more about how litigators and regulators are changing the retirement plans institutions offer their employees.

Tuesday, January 3, 2017

January 2017 Market Update

“Trying to inspire someone who does not recognize that he has a problem is a recipe for defensiveness and resentment. Inspiration is something we must save for the interested.”
Blair Enns, author, The Win Without Pitching Manifesto
Let's review price, sentiment and valuation as we kick off a new year of investing.
Source: CoreCapInvestments
Price action ended the year on a buy signal for stocks. The monthly moving average numbers continue to tell investors to stay in both US and Foreign developed stocks. This is based on month end closing prices above the 10 and 12 month moving averages for exchange traded funds VTI and VEU. Bonds remain the most unloved asset class as we enter 2017. See the moving average charts below for more information.
Source: CNN Money Fear & Greed Index
Investor sentiment remains about where we ended last month. Investors have seen their collective mood become significantly more greedy following the conclusion of the United States Presidential election. Is the mood euphoric or simply optimistic with euphoria waiting to set in later in the Trump presidency? We like to buy when fear is high, so if you are adding new money to this market, this indicator suggests you should dollar cost average over a few months rather than investing in one lump sum.
Source: Morningstar Market Fair Value Graph
Valuation remains elevated. This has implications on long term investment results, but has minimal impact on short term direction of markets. Expensive markets frequently become more expensive. Investors are pricing in perceived improvements in tax policy and deregulation that they are hopeful will increase earnings of public US companies while simultaneously unleashing the animal spirits of the market. Humans are like insects attracted to the light in the woods. If the market for an asset class starts glowing brighter human nature is to increase our intensity of being drawn to the light of that asset class (stocks, bonds, REITs, hedge funds etc) regardless of the long term consequences. The flip side is if the light is out or very dull we avoid the asset class like we avoid a sloppy drunk on New Year's Eve.
Source: Doug Short Monthly Moving Averages December Month-End Update
In summary, the market continues to move higher as we start the new year. Bonds, as represented by the exchange traded fund IEF, remain the only broad asset class that monthly moving averages indicate investors should avoid. Real estate is followed as having one of two monthly indicators signaling to stay away from REITs. Remember to follow a well constructed financial plan, which should include a written investment policy statement. Before making any investment ask yourself: How does XYZ investment enhance my portfolio? Lastly, remember wealthy people purchase items that will go up in value based on increasing cash flows. Wise investing my friends.
Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.