News and Articles

• Privates Eye: Deficit Spending to Maintain Consumption is a Waste

  07/28/2010

  Bill Gross, manager of the world's biggest bond fund PIMCO total return (PTTRX) wrote in the latest PIMICO's investment outlook: "I write this month to condemn the inventor of the electronic “seeing eye” toilet. Yes, that’s right, I’m talking toilets here, doo-doo-stuff, some of which I hopefully won’t step in myself over the next few paragraphs. I know there must be more substantive and less objectionable topics to bring before you, but I have a sense that many of you join me in spirit if not common experience and so I devote this month’s Outlook to another trivial snippet emphasizing our joint humanity and sense of loss due to the recent disappearance of the hand flusher."

  Jokes aside, Gross continued "PIMCO’s continuing New Normal thesis of deleveraging, reregulation and deglobalization produces structural headwinds that lead to lower economic growth as well as half-sized asset returns when compared to historical averages. The New Normal will not be aided nor abetted by a slower-growing population nor by cyclical policy errors that thrust Keynesian consumption remedies on a declining consumer base. Current deficit spending that seeks to maintain an artificially high percentage of consumer spending can be compared to flushing money down an economic toilet. Far better to create and mimic other government industrial policies aimed at infrastructure, clean energy, more relevant education and less costly healthcare services. Until we do, policymakers will continue to wave their hands in front of the electronic eye – waiting for the flush, waiting for the flush, waiting for the flush, with very little success. Try another way, Washington. El-Erian, Sachs and other 21^st century policy thinkers have a better way to push the handle."

  Common sense wise, without jobs and without producing goods (i.e. creating value), it is hard to believe the economy will get back to the good old days. 

  labels:investment ,

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• Ten Stock-Market Myths That Just Won't Die

  07/27/2010

  Brett Arends wrote this piece of article on Wall Street Journal. Just simply hearing the sayings and acting is essentially being blind folded and led into a broker's cage. Do your homework, form your core principles (such as diversification, disciplined with a methodology or system) and always center around these core principles is the only way to stand firm and take care of yourself (isn't this true for every other aspect of life?). 

  Here are the ten myths

  1 "This is a good time to invest in the stock market."

  2 "Stocks on average make you about 10% a year."

  3 "Our economists are forecasting..."

  4 "Investing in the stock market lets you participate in the growth of the economy."

  5 "If you want to earn higher returns, you have to take more risk."

  6 "The market's really cheap right now. The P/E is only about 13."

  7 "You can't time the market."

  8 "We recommend a diversified portfolio of mutual funds."

  9 "This is a stock picker's market."

  10 "Stocks outperform over the long term."

  labels:investment,

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• Schwab ETFs Review

  07/27/2010

  In June, Schwab announced reducing expenses for their proprietary ETFs. This, along with recently announced commission free ETF trading from Schwab, Vanguard and Fidelity, represents an important and promising trend for ETFs in portfolio building. The following is the comparison among similar ETFs from Schwab, Vanguard and iShares. 

  	Schwab	Vanguard	iShares
  Schwab U.S. Broad Market ETF	SCHB (0.06%)	VTI (0.07%)	IWV(0.21%)
  Schwab U.S. Large-Cap ETF	SCHX (0.08%)	VV (0.12%)	IVV (0.09%)
  Schwab U.S. Large-Cap Growth ETF	SCHG (0.13%)	VUG (0.14%)	IVW (0.18%)
  Schwab U.S. Large-Cap Value ETF	SCHV (0.13%)	VTV (0.14%)	IVE (0.18%)
  Schwab U.S. Small-Cap ETF	SCHA (0.13%)	VB (0.14%)	IJR (0.20%)
  Schwab International Equity ETF	SCHF (0.13%)	VEA (0.14%)	EFA (0.35%)
  Schwab International Small-Cap Equity ETF	SCHC (0.35%)	VSS (0.40%)	SCZ (0.40%)
  Schwab Emerging Markets Equity ETF	SCHE (0.25%)	VWO (0.27%)	EEM (0.72%)

  So far, Schwab ETFs are all equity (stock) index based funds that include U.S. stocks, international stocks and emerging market equity. Compared with iShares or even Vanguard, Schwab has been late in the game and their ETFs have short history. However, Schwab has a relatively good record in their mutual funds that are managed using quantitative models. That experience using quantitative models in their portfolio management certainly can help their ETF management.  Ultimately, what it really matters for investors are the total returns of ETFs that reflect both expenses (taken out from asset under management, usually monthly) and fund performance before fee. The following is the total annualized return table for ETFs from Schwab, Vanguard and iShares up to 7/23/2010. All performance data are calculated from Schwab ETFs’ inception date.

  	Schwab	Vanguard	iShares
  Schwab U.S. Broad Market ETF (inception 11/03/2009)	SCHB (11.78%)	VTI (11.09%)	IWV(11.9%)
  Schwab U.S. Large-Cap ETF (inception 11/03/2009)	SCHX (10.57%)	VV (9.54%)	IVV (9.37%)
  Schwab U.S. Large-Cap Growth ETF (inception 1/4/2010)	SCHG (-4.23%)	VUG (-4.72%)	IVW (-5.81%)
  Schwab U.S. Large-Cap Value ETF (inception 12/15/2009)	SCHV (1.48%)	VTV (1.06%)	IVE (0.5%)
  Schwab U.S. Small-Cap ETF (inception 11/03/2009)	SCHA (23.92%)	VB (23.25%)	IJR (22.08%)
  Schwab International Equity ETF (inception 11/03/2009)	SCHF (-0.01%)	VEA (-2.25%)	EFA (-4.03%)
  Schwab International Small-Cap Equity ETF (inception 1/14/2010)	SCHC (-9.51%)	VSS (-8.43%)	SCZ (-11.14%)
  Schwab Emerging Markets Equity ETF (inception 1/14/2010)	SCHE (-3.09%)	VWO (-2.49%)	EEM (-5.77%)

  From their short history, it is very  impressive that almost all of Schwab ETFs deliver better or no worse total returns: all Schwab ETFs outperform their iShares counterparts while, compared with Vanguard,  only SCHE (emerging mkt equity) and SCHC (international small cap) slightly underperform Vanguard VWO and VSS respectively. Coupled with commission free trades for these ETFs, Schwab ETFs are very enticing for investors. The main drawback, however, is that Schwab does not offer ETFs in other major asset classes, especially in fixed income (it was reported that Schwab will soon provide fixed income ETFs). To build an effective portfolio, investors are forced to use other ETFs to cover missing major asset classes such as fixed income. Schwab charges $8.95 per trade for ETFs provided by other parties.

  MyPlanIQ maintains Schwab Commission Efficient ETFs Plan. Since Schwab's ETFs only cover Domestic and International Equities, the additional ETFs are used to include other major asset classes including US REIT (IYR), Global REIT (IGR), Commodities (DBC, GLD), International Bonds (BWX), Fixed Incomes and Long/Intermediate/Short US Treasury Bonds (TLT, IEI, SHY) and High Yield Junk Bond (JNK). These additional ETFs are not commission free in a Schwab brokerage account. The strategic and tactical asset allocation moderate portfolios have the following performance:

  	1 Yr Annual Return	3 Year Annual Return	5 Year Annual Return
  Strategic Asset Allocation Moderate	20%	0%	3%
  Tactical Asset Allocation Moderate	4%	5%	6%

  In conclusion, like Vanguard ETFs, Schwab proprietary ETFs offer compelling values for portfolio building: low cost and commission free. To make their ETFs widely usable and competitive to iShares, however, Schwab (as well as Vanguard) needs to help to increase trading volume for these ETFs so that the tracking errors/friction could be reduced. This is perhaps the major important remaining obstacle for these ETFs to become staples for portfolios.

   labels:ETFs,brokerage,

  Symbols:schb,vti,iwv,schx,vv,ivv,schg,vug,ivw,schv,vtv,ive,scha,vb,ijr,schf,vea,efa,schc,vss,scz,sche,vwo,eem,iyr,icf,igr,dbc,gld,bwx,tlt,iei,shy,jnk,iyg,agg,bnd,

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• Amber Waves of Pain: Commodities ETFs Are Killing Investors

  07/26/2010

  BusinessWeek published an article in its latest issue on how badly commodity ETFs have underperformed recently, even compared with their underlying commodities. The most glaring example is U.S. Oil fund (USO): in February 2009, for example, crude rose 7.4 percent while USO fell by 7.4 percent! Other commodity ETFs mentioned in the article include: U.S. Natural Gas Fund (UNG), Poweshares DB Agriculture Fund (DBA).

  The main culprit is what is called Contango problem: when contracts for future delivery of a commodity are more expensive than near-term futures contracts. Most commodity ETFs have to roll near-term soon to expired futures contracts to longer term contracts and pay dearly for such rolls. From investors' point of view, the end results are that such ETFs fail to deliver their promise: closely matching the underlying commodity prices.

  (Con)Tango

           

   

  On the other hand, gold fund GLD or silver fund SLV use physical commodities that are free of the contango problem. So far, they have delivered what they are supposed to deliver: closely matching the spot prices.

  We are cautious on commodities ETFs. This is especially true in MyPlanIQ Strategic Asset Allocation (SAA) portfolios. This is less an issue in Tactical Asset Allocation TAA portfolios as the price underperformance will automatically weed out those ETFs.

  labels:ETFs,investment,

  Symbols:DBA,DBC,GLD,SLV,USO,UNG,

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• Some employers steal from 401(k) plans

  07/26/2010

  Robert Powell at MarketWatch.com reported that "Most of the time, the money you contribute to your 401(k) ends up in your account. But there are times when it doesn't, as evidenced by a recent flurry of press releases from the U.S. Labor Department's Employee Benefit Security Administration. "

  The main problem seems that some employers did not deposit employees' contribution timely and misused the funds that were at transit. In general, once the funds are in a 401K custodian account, it is much harder for anyone to misuse the funds. So the key here is to check your account balance once your paychecks are cut. 

  Further due diligence includes checking Form 5500: the 401K audit report that is publicly available from the Labor Department and check warning signs such as total amount withheld in your paychecks. 

  Staying on top of hard earned money and make sure it is not only integral but grow consistently. 

  Original Article

  labels:401K,Retirement,

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• Retirement Security Brighter

  07/25/2010

• Fund rating system not fool-proof

  07/25/2010

• How an Independent Retirement Account Works

  07/23/2010

• When to Rebalance Your 401K

  07/23/2010

• 6 Steps to Rebuilding Your Retirement Nest Egg

  07/21/2010

• Study: Savings May Run Dry for Forty-Seven Percent of Boomers

  07/21/2010

• JD Powers Survey Shows Inestors Wary of Advisor Firms but Like Advisors

  07/19/2010

• Break Free of your Bonds

  07/19/2010

• Target-Date Funds Attract Younger, Less Affluent Investors

  07/16/2010

• Some entertaining words

  07/13/2010

• The Great Divergence

  07/12/2010

• LIMRA: Are Pre-Retirees Like the Grasshopper or the Ant?

  07/12/2010

• Facing Retirement Fears

  07/12/2010

• Investing with Styles Can Pay off

  07/09/2010

• Don't Be Complacent in Bonds

  07/07/2010