Diversification Matters

Walter Upgrave at the Wall Street Journal shares his thoughts about diversification. As we cross 17,000 on the Dow let's look at what we can do to diversify portfolios (click on the chart below to learn more):

Please read the article (subscription required) or google search How Much Diversification is Too Much by Walter. Another take on the case for diversification is made by Paul Merriman with the portfolio he calls the ultimate buy and hold portfolio. Here is his article and the graphs. As is obvious, please consult a financial advisor before making any financial decisions. We only provide education, not personal recommendations.

The Path to Financial Prosperity and Security

1. Don't spend beyond your means

2. Educate yourself

3. Pick the right field

4. Save (and invest) early

5. Don't swing for the fences

6. Keep yourself covered

7. Be wise about a windfall

8. Hang onto cars (and houses)

9. Avoid debt

Source Kiplinger Read what they mean for each item and see if you meet their criteria.

Debt in America

This is an update on debt in America from the Urban Institute:

Debt can be constructive, allowing people to build equity in homes or finance education, but it can also burden families into the future. Total debt is driven by mortgage debt; both are highly concentrated in high-cost housing markets, mostly along the coasts. Among Americans with a credit file, average total debt was $53,850 in 2013, but was substantially higher for people with a mortgage ($209,768) than people without a mortgage ($11,592).

Source: Urban Institute Complete Study

U.S. Household Net Worth Drops

The NY Times brings us this update from the Russell Sage Foundation:

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” said Fabian T. Pfeffer, the University of Michigan professor who is lead author of the Russell Sage Foundation study.

Here is the study.

Bull market sends 401(k)s soaring to record highs

Fidelity analyzed its accounts for 13 million workers with 401(k) plans as well as its IRA balances for individuals at the end of the second quarter.

• The average 401(k) balance rose 12.9% to $91,000, a record high, up from $80,600 at the end of the second quarter of 2013. This represents accounts from a wide range of workers, including those just starting their careers and others nearing retirement.

• The average balance in a Fidelity Individual Retirement Account (IRA) at the end of the quarter was $92,600, another record high, up 14.7% compared with the same time last year.

• 77% of the growth in account balances is due to the stock market; 23% is due to employee and employer contributions.

• The average balance for employees who have been saving in their 401(k) for 10 years increased 15% over the last decade to $246,200.

• Employees contributed an average of $6,050 to their 401(k)s this past year; employers contributed an average of an additional $3,540.

Source

Financial Literacy Quiz

For those of you who want to test your financial IQ, here is a 17 question test. Annamarie Lusardi, a professor at George Washington University, and one of the researchers who created the Five Steps educational program, says that answering approximately 11 out of 17 questions correctly indicates financial literacy.

How Much Money Do You Need to Retire?

Kathleen Pander at SF GATE recently investigated this question. The article is worth the read. Here is a quote:

In its sobering survey, the Employee Benefits Research Institute found that 36 percent of workers have saved less than $1,000 and only 11 percent have saved $250,000 or more. But that includes workers of all ages. In a separate study, the institute predicted that 53 percent of workers will have enough resources to meet expenses in retirement.

The article looks at different ways to determine how much you need to have saved when you retire. It draws on suggestions from Schwab, Fidelity and T. Rowe Price. Just read it.