<ul><li>In This Issue: </li></ul><ul><li>Our Brand New 2006 Workshop:  Saving – Investing For Retirement:  A  Simple Appro...
-2- In our brand new workshop, we look at and discuss 10 simple, lazy-low-maintenance portfolios that utilize index funds....
-3- advice” protections is one of the main reasons officials at Merrill Lynch and Salomon Smith-Barney got in trouble with...
-4- As our Baby Boomers turn 60, the defined contribution industry is waking up to the frightening reality that millions o...
-5- post-retirement-age employment and, often, age discrimination - perceived or real - as they look for a sense of securi...
-6- All of these funds outperform other index funds because their expenses are almost unbelievably low -- 6 basis points, ...
Quick Take # 1:   Who Can You Believe? In the February 2006 issue of Fortune magazine, we found two conflicting views on w...
- 8 - This newsletter intends to present factual up-to-date, researched information on the topics presented.  We cannot ma...
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Your Retirement June 2006 Newsletter1

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Your Retirement June 2006 Newsletter1

  1. 1. <ul><li>In This Issue: </li></ul><ul><li>Our Brand New 2006 Workshop: Saving – Investing For Retirement: A Simple Approach </li></ul><ul><li>What You Should Know: The Danger of Chasing Mutual Fund Performance </li></ul><ul><li>Our Brand New 2006 Workshop: Saving – Investing For Retirement: Simple Portfolio #4 </li></ul><ul><li>This Month’s Question: Is The Fox Welcome In The Henhouse? </li></ul><ul><li>A Retirement Diary: New Strategies For Boomers Retirement </li></ul><ul><li>Getting To The Nitty Gritty: Retirees And Health Care Costs </li></ul><ul><li>What’s Ahead: Older Workers Say --- Working! </li></ul><ul><li>How Can I: Find Out More About A Reverse Mortgage </li></ul><ul><li>Building Your Nest Egg: The Thrift Savings Plan </li></ul><ul><li>Sandy The Smart Saver: Chasing Yesterday’s Winners </li></ul><ul><li>Sandy Cartoon </li></ul><ul><li>Quick Take #1: Who Can You Believe </li></ul><ul><li>Quick Take #2: Average Investors Earn Less </li></ul><ul><li>Stock Market – Wall Street --- Investment Humor </li></ul><ul><li>Quotable Quotes </li></ul>Your Retirement Welcome to Your Retirement, our monthly web-newsletter with information that can help you with your retirement planning efforts. We provide straight-forward, easy to understand, unbiased and candid information. Feel free to use this information and to also pass it along to your friends and associates. You will find previous issues of our newsletter on our website. If you are interested in additional information that can help you, be sure to check out our web site; retirementplanningconsultants.com or contact Robert R. Julian, at rrj1@cornell.edu ® RETIREMENT PLANNING CONSULTANTS A Guide To Your Retirement Planning - Volume III - Number 6 June 2006 Our Brand New 2006 Workshop: Saving – Investing For Retirement --- A Simple Approach: Mark Hebner, in his new book, Index Funds: The Twelve Step Program For Active Investors , highlights some excerpts from Warren Buffett’s letters to his Berkshire Hathaway shareholders. In February 1996 he said, “The best way to own common stocks is through index funds.” In his 1997 letter, Buffett wrote, “Let me add a few thoughts about your own investments. Most investors, both institutional and individual, will find the best way to own common stock 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.” In his February 2003 letter, he gave this advice ---“Those index funds that are very low cost (such as Vanguard’s) are investor friendly by definition and are the best selection for most of those who wish to own equities.” In his February 2004 letter, he wrote, “Over the past 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns. All they had to do was piggyback corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead, many investors have had experiences ranging from mediocre to disastrous.” Buffett, who has been cited as the world's greatest stock market investor, obviously knows how to invest. A lot of us wish we could invest like Warren -- and for good reason. His record is extraordinary. His company, Berkshire Hathaway, has earned investment returns about double those for the market has a whole. Is there a reason why Buffet continually recommends that investors purchase index funds? Because they deliver what the market returns.
  2. 2. -2- In our brand new workshop, we look at and discuss 10 simple, lazy-low-maintenance portfolios that utilize index funds. What is the aim of this approach? It is to produce a portfolio of low-cost mutual funds investing in asset classes that are likely to outperform the S&P 500 Index and many, if not most actively managed mutual funds. On page 3 of this newsletter, you can take a look at Simple Portfolio #4. What You Should Know : The Danger Of Chasing Mutual Fund Performance You look at the quarterly report on mutual fund performance and there is it -----The XYMZ Hi Tech Excellence Performance fund turned in the top performance at the end of the first three months (quarter) of 2006. It gained 63.5%. You think about it----I could sell every fund in my 401(k) and buy XYMZ Hi Tech Excellence Performance. I could also put all of my future contributions into XYMZ. A gain of 64 percent a year for 10 years and I could retire at age 50. I’ll go into our benefits office at work tomorrow and get this done. My advice? Postpone the trip. Buying funds on the basis of what they have done in the past three months could delay - cancel your retirement. The top performing funds each quarter, half-year, year --- don’t continue to perform well in the future. I know those lists are enticing and you’ll find them in all of the financial magazines and on the web. But, they are dangerous. Why? Because they look at such a short time period. I was reminded of that when I read Russel Kinnel’s column (Morningstar.com) “Are the Hottest Funds of 2006 worth buying”. Kinnel warns us to approach these lists with caution. “The top performers from the first quarter of 2006 are a case in point. Across the board, these funds have high costs and are extremely volatile, and some have lousy managers. Because of these traits, the odds are quite slim that if you bought one of these funds today you'd be happy with your decision 10 years from now.” Kinnel shows us the top performing funds for the first quarter of 2006.  Top-Performing  Funds in 2006 Fund Name YTD Return Oberweis China Oppor OBCHX 36.64 U.S. Global Invest Wrld Prec Min UNWPX 34.50 Frontier MicroCap FEFPX 33.34 U.S. Global Investors Gold USERX 32.62 Not Dreyfus Premier Greater China DPCAX 29.38 Gartmore China Oppor GOPIX 27.10 ProFunds Ultra Small Cap UAPIX 26.89 Firsthand Technology Innov  TIFQX 24.55 ProFunds Ultra Real Estate REPIX 24.00 Reynolds REYFX 23.97 Returns through 03-30-06. Kinnel states, “The kind of super-volatile, high-cost funds found in this quarter's top-10 list tend not to last long in investors' portfolios, or really at all. The fact is, a lot of these funds get killed off eventually. Alas, many trendy funds from years past--such as Steadman Oceanographic, Kinetics MidEast Peace, and Amerindo B2B--aren't around anymore.” Let’s look at Frontier Microcap, one of the 10 top-performing funds for the past three months. It gained 33.34% the first quarter, vs. 12.1% for the average small-cap core fund. What's so strange about that? USA Today looked at the fund's dismal long-term record. “It has turned a $10,000 investment into $361 over the past 10 years. It has just $200,000 in assets. Its share price is 24 cents. Its largest holding is 45,000 shares of eGene, a genetic testing company. The company's shares sell for about $1.10 and account for more than 10% of Frontier's portfolio. The expenses weigh in at an amazing 17.67% of assets. The fund's prospectus shows you how much you'd pay in fees over 10 years, assuming you invested $10,000 and the fund earned 5% a year. That would be $13,771.” Something in Frontier's portfolio worked well during the first quarter of 2006. “Given the fund's track record and expenses, though, it's a good bet that Frontier won't be duplicating its first-quarter performance any time soon.” And this is the fund that is going to help you to retire at 50? Not on the basis of this performance!!! Kinnel states that only three of the 10 funds have a 10-year track record and over the long-term, none of the three are attractive despite their big first quarter this year. “ I'd bet that maybe one of the funds in this list will provide a nice return over the next 10 years, but even that one may produce poor results for its average shareholder because it's so hard to time these funds right. To make money in a highly volatile fund, you need to have the courage to buy when it is isn't hot (ideally when it's in the red) and then hold on through the horrifying losses.” Kinnel and a good number of other experts will tell you to forget about first-quarter winners or any of the other hottest short-term performance funds. Look for funds that can back up a claim of truly impressive performance over a significant period of time. For more on this topic, check out this month’s Sandy The Smart Saver column. By the way, the XYMZ fund doesn’t exist. Our Brand New 2006 Workshop: Saving – Investing For Retirement -- Simple Portfolio #4 In the March 2006 edition of this newsletter, we featured from Paul Merriman’s book, Live It Up without Outliving
  3. 3. -3- advice” protections is one of the main reasons officials at Merrill Lynch and Salomon Smith-Barney got in trouble with New York State Attorney General Eliot Spitzer. Graham is more than concerned that legislators could vote in favor of conflicted advice to retirement plans and participants. “First, there is the obvious conflict of interest of a mutual fund or brokerage firm getting paid to give advice on proprietary funds that also drive revenue for investment management and or execution of transactions. The proponents of conflicted advice have a reasonable argument. Both the plan fiduciaries and the participants need advice.” But, how can participants be harmed by conflicted advice? Some will say that conflicted advice is better than none at all. Perhaps proponents of conflicted advice really don't think participants would be better off, rather that they would not be harmed to the extent that opponents of the bill claim they would be. Some would say that there are no independent advisors. Graham doesn’t buy that argument. “There is no shortage of independent advisors, but being independent means not being employed by an organization that can spend big dollars to lobby legislators in favor of conflicted advice.” Graham states that the reason independent advice is not more prevalent is that the large firms that don't actually provide advice, but lead many clients to think advice is being provided. “If independent advice were mandated by legislation, there would be no shortage of supply.” Therefore, the question is asked ---- Does the fox have a real presence in the investor’s henhouse when the fox is providing the (“conflicted”???) advice? “ Now if your goal is to buy low and sell high, it stands to reason that you can’t buy popular investments. If you buy what’s popular, the price has already moved and what you are already doing is buying high and selling higher.” Anthony M. Callea, “Bulls Make Money, Bears Make Money, Pigs Get Slaughtered” A Retirement Diary: New Strategies For Boomers Retirement During the past 25 years or so, we have moved from the paternalistic defined benefit pension plan. My Mom and Dad each had one; perhaps your parents did too. We now have the do-it-yourself 401(k). And with that change, workers have had to assume a lot of additional responsibilities ---- do I sign on to participate, how much money shall I set aside from each paycheck, how do I make good, sound investment choices. What we have found is that it has become obvious that most of our plan participants need help in just about every stage of the process. Your Money , Portfolio #2 --- which allocated 60% to the S&P 500 index and replaced the 40% in the Lehman Government - Corporate Bond index (Portfolio #1) with a shorter - term fixed-income component (Short-term bonds).  It had an annualized return of 10.4% (1/1970 – 12/2005) In our April newsletter, we featured Merriman’s Simple Portfolio #3, which reduced the allocation to the S&P 500 Index (large-cap U.S. stocks) from 60% to 30% and adds 30% to U.S. Micro-Cap (small-cap U.S stocks).  It maintains 40% in short-term bonds.  The result is a higher annualized return of 11.2% (1/1970 – 12/2005). This month, we feature Merriman’s Simple Portfolio #4. In portfolio #4, he allocates 60% to stocks--- 15% to the S&P 500 Index, 15% to the U.S. Large-Value Stock Index, 15% to the U.S. Small Value Stock Index, and 15% to the U.S. Micro-Cap Stock Index.  It still maintains 40% in short-term bonds.  In the period from January 1970 December 2005 (36 years), the result is a higher annualized return of 12.1%.. (1/1970 – 12/2005) This Month’s Question: Is The Fox Welcome In The Henhouse? Jeb Graham, of Cap Trust Financial Advisors, an independent consulting/advisory practice, in his guest commentary for 401(k)helpcenter.com, raised an issue that needs to be addressed---- providing advice for 401(k) investors. He states that “ Since 1997, Rep. John Boehner has championed a bill that would remove current ERISA provisions that prohibit conflicted advice and would allow mutual fund companies, banks and brokerage firms to provide advice on their own investments. Each time the bill passed the House, the Senate rebuffed it. Once again, conflicted advice is being discussed, this time as part of a broad pension bill that contains numerous very positive provisions.” What is “conflicted advice?” Current law prohibits employers from offering “conflicted advice” --- where consultants profit from the investment decision they suggest to employees. Violations of these “conflicted
  4. 4. -4- As our Baby Boomers turn 60, the defined contribution industry is waking up to the frightening reality that millions of members of that largest generation in American history are not financially prepared to enter the world of retirement. In the past, the emphasis, both in managing and servicing 401(k) plans, has been to promote the accumulation of assets. Now, the focus is moving toward the distribution of those assets and how that will enable Boomers to maintain and manage a stream of income after they leave the world of work. For years, the underlying assumption has been that some combination of IRA drawdown and/or annuity purchase—or both—in tandem with other sources, such as pension income and Social Security, would provide the financial foundation for the nation's retirement security. These days, the predictability of those once predictable streams of income is in doubt. Chris McNickle, managing director of Greenwich Associates, a research and consulting firm for financial services companies, states, “The number of people reaching retirement over the next 20 years is extraordinary, and that has raised the importance of figuring out how people are going to be managing their income in retirement. There are profound implications for the products, services, and advice that people need.” A survey conducted by Fidelity found that average American households are on pace to replace just 56% of their pre-retirement income in retirement. That’s far short of the 85% replacement income that Fidelity pegs as a reasonable replacement ratio. “The Baby Boomers are starting to retire, and they’re coming to the realization they may not have the income they will want to retire on.” This raises a number of questions. Will boomers still retire? Will they stay on the job? Will they work part-time? Will they retire part-time? What will you do? Getting To The Nitty Gritty: Retirees And Health Care Costs There are two primary items that retirees worry about ---- 1) will I run out of dollars before I run out of days and 2) will I have health care coverage throughout my retirement. And, if you have been reading your newspapers, you know that a growing number of employers have cut — or are considering cutting — retiree health benefits in some form (including imposing a ceiling on the amount the company will pay out for retirees' health costs). The list includes Ford Motor Company, Nissan, IBM, United Airlines, Delta Airlines, and Sears. Only 33% of large companies — defined as those employing 200 or more workers — offered retiree health benefits in 2005, compared with 66% back in 1988, accord- -ing to the Kaiser Family Foundation's 2005 Annual Employer Health Benefits Survey. And this means many retirees will have to dig deeper into their savings to fund health-care costs. A report from Fidelity Investments estimates that a 65-year-old couple retiring today can expect to spend an average of $200,000 on health care during their retirement. This estimate includes expenses associated with prescription drug costs, Medicare Part B and D premiums, as well as Medicare co-payments, coinsurance, deductibles and excluded benefits. It doesn't include, however, other potentially substantial expenditures, such as over-the-counter medications, dental services and perhaps most importantly, long-term care expenses. And that means that Americans need to be prepared to spend a large chunk of their retirement money on health care. Some feel that this will probably be the single biggest component they need for retirement. What should you do if you are worried that you may have to take on more health-care costs than expected during retirement? Maximize Your 401(k). SmartMoney.com tells us that whether you are saving for that dream vacation you will take in retirement or paying for health care costs, “saving via your 401(k) is a great way to do it.” You will need your 401(k) “for more than just supplementing Social Security.” You should also consider contributing to a health savings account, a relatively new account that allows individuals to set aside money in a tax-advantaged account to cover non-reimbursed health-care costs. Contributions to these accounts are tax deductible and qualified withdrawals are tax-free, which makes them better (at least from a tax perspective) than any Individual Retirement Account (IRA) currently available. And of course you can stay healthy or try to get healthier. Don’t underestimate the savings that can be generated by good health habits. Turn off the TV and get off the couch; start exercising, control those ice cream, chocolate candy, cheesecake, popcorn w/butter cravings. A healthy lifestyle should be a big part of your retirement planning. What’s Ahead: Older Workers Say --- Working! Dr. David DeLong, a research fellow at the MIT AgeLab, and director of a study for the MetLife Mature Market Institute, states “T oday, older workers view retirement as a desirable state, not a particular date.” He adds that when his firm conducted the study, “we found that mature workers are struggling to balance the conflicting pressures of income security,
  5. 5. -5- post-retirement-age employment and, often, age discrimination - perceived or real - as they look for a sense of security and meaning during their 'retirement' years.&quot; The study also revealed that 78% of respondents age 55-59 are working or looking for work, as are 60% of 60-65 year-olds and 37% of 66-70 year-olds. Across all three age groups, roughly 15% of workers have actually accepted retirement benefits from a previous employer, and then chose to return to work (or are seeking work). These employees, who have become known as the &quot;Working Retired,&quot; represent 11% of 55-59 year-olds, 16% of 60-65 year-olds and 19% of 66-70 year-olds. What were the factors that convinced employees to return or remain in the workforce? Among workers age 55-59, economic incentives take precedence, with 72% of employees in this age bracket citing &quot;need income to live on&quot; as a primary reason for working. Some economic incentives were also the number one motive cited by 60-65 year-olds (60%), followed by a desire to &quot;stay active and engaged&quot; (54%) and &quot;do meaningful work&quot; (43%). Among 66-70 year-olds, however, 72% of employees cited the desire to &quot;stay active and engaged&quot; as a primary reason to work, followed by &quot;the opportunity to do meaningful work&quot; (47%) and &quot;social interaction with colleagues&quot; (42%). Although older workers feel they may want to or have to remain in the workforce, they are not looking for another full time position. Of those still in the workplace, about 76% of 55-59 year-olds work more than 35 hours a week, and only 39% of 66-70 year-olds work that much. Nearly four in 10 (39%) of those age 66-70 are working fewer than 20 hours a week. Among those seeking work in this age group, 56% wanted less than 20 hours per week. Do you see yourself in any of these categories? How Can I: How Can I: Find Out More About A Reverse Mortgage A reverse mortgage is a loan that allows homeowners 62 and older to take money out of their home, never have to move out or worry about paying it back. Although they only represent a small fraction of home loans, the demand for these loans is growing. In 1990, only about 150 homeowners took out a reverse mortgage, last year, more than 43,000 did. If you would like to know more about them, contact the AARP Foundation’s Reverse Mortgage Education Project. You can call 800-209-8085 or look them up on the web at www.aarp.org/revmort . Building Your Nest Egg: The Thrift Savings Plan Back in the Spring of 2005, President Bush was promoting the Thrift Savings Program, the retirement savings plan that federal employees enjoy as a model for individual investment accounts. These new accounts would be created with the funds that workers now pay for Social Security taxes. His plan would change the system so that the amount that each worker collects from Social Security upon retirement instead would hinge on the size of investments in his/her own personal account. The President made dozens of speeches but Congress never acted on his proposal. However, there are a number of people who feel that this program works better and more economically than any other program of this nature in the private sector. Timothy Middleton is one of them. Writing in his column “A government program that gets it right” for moneycentral.com, states, “The federal Thrift Savings Program is possibly the finest 401(k)-style plan in the nation. More to the point, the 3.4 million federal employees who participate have proved themselves to be competent and conservative long-term investors.” The President cited the Thrift Program as an example of what he would like to make available to all Americans. Some critics worried that workers would piddle away their savings on risky investments. Middleton states that “The actual experience of the TSP indicates otherwise. Rather than going broke, TSP participants are beating the pants off of Social Security's investment performance with no more risk than displayed by private pensions in general.” Middleton adds that if we just copied the plan, it would virtually guarantee a richer retirement purse for Social Security beneficiaries. The Thrift Savings Program was launched in 1987. It's operated by the Federal Retirement Thrift Investment Board, a group of Wall Street and pension-industry veterans appointed by the president and confirmed by the Senate. It offers five investment portfolios. G Fund: This is, in effect, an intermediate-term government bond fund. It invests in specially issued Treasury securities. F Fund: This is an intermediate-term high-quality bond fund that tracks the Lehman Aggregate Bond Index C Fund: This fund is indexed to the Standard & Poor's 500-stock index ( $INX ) of large-capitalization stocks. S Fund: This portfolio is indexed to the Wilshire 4500 Index of small and mid-cap companies. I Fund: This fund is indexed to Morgan Stanley's Europe, Australasia, Far East, or EAFE, Index of large-company foreign stocks.
  6. 6. -6- All of these funds outperform other index funds because their expenses are almost unbelievably low -- 6 basis points, or 0.06%, on all the funds (except F Fund, which has an expense ratio of 5 basis points). Private index-fund investors pay at least three times as much in expenses, and many pay 10 times more. How have the funds performed? Middleton states, “The TSP is a prudent and well-managed retirement program. And if it or something identical were offered as part of Social Security, Social Security would be greatly strengthened as well as greatly changed. It would be transformed from a semi-welfare program to a genuine individual-retirement account, which is what most people think they are buying when they pay Social Security taxes.” My Uncle Clem, is a “chaser.” He will chase every acorn you own. He will chase your car as you leave the driveway. He’s the guy in high school who chased every fad. He is also a “chaser” in investing. He’s the guy who buys the “Top Mutual Funds of 2005” in 2006---after they have fallen from their previous high. I’ll never forget a meeting of our “Us Squirrels Ultimate Investment Club” about four or five years ago. Mom (Josephine), our fearless leader, was leading the session. We were discussing which funds we should be buying in 2001. The discussion was just starting when Clem raised his hand and said, “President Jo, I don’t think we need to have too much discussion here.” Mom asked, “Why?” Clem responded, “As you may see, here (holding a piece of paper over his head) is the listing of the top mutual funds from 2000. The top 5 funds in this list all gained more than 30% in 2000. This one should be a slam dunk.” We were right in the middle of the basketball season. Mom once again almost blew a gasket. “That piece of paper that you have is about as worthless as all of the stock and fund recommendations you have made in the past 10 years.” Clem protested, “Are you going to quarrel with the guys from Kiplinger’s who put this report together.” Mom responded, “The guys from Kiplingers are great. The stuff you infer from their reports belong in the ash can.” Mom, as you know, has a way with words. Clem responded, “But, but, but”until Mom cut him off with ----“O.K, let’s take a look at what the guys from Kiplinger’s have to say about ‘Don’t chase winners” and I quote. ‘Suppose you had decided on the first day of 2000 to invest $10,000 in each of the five best performing funds of the preceding five years. The idea would have been tempting --- on average, the fabulous five funds had earned an annualized 53%.” Clem interrupted, “That’s what I was talking about --- the only thing that I got wrong was I said it was 30%.” Mom replied, “The only thing you got wrong was you don’t know squat about investing. Let me continue. Kiplinger then states ‘But the next five years told a different story. Those same funds lost 61% of their asset value. In other words, your $50,000 investment would have shrunk to $19,695.” And I say --- not Kiplinger says ---- Clem, your style of investing would cause the ‘Us Squirrels Investment Club’ to declare bankruptcy.” “ Sure Clem, past performance does matter but in a vacuum, chasing last year’s winners is as dangerous as the job you had back in the late 1990’s.” Clem asked, “What was that Jo?” Mom replied, “You don’t remember those fabulous days you spent as a day trader. You may recall that all five of the top funds at the end of 1999 were technology sector funds and I am sure you remember all too many of those dogs that you invested in.” Clem responded, “I’m trying to put all that behind me and move forward.” Mom said, “Great, Clem, let’s go out to Starbuck’s . We’ll put all that stuff behind us. I’ll buy you a frappucino and we’ll try to figure out how the Love Bug virus is creating havoc on computers all across America.” “ The point is that market timers risk missing the infrequent large sprints that are big contributors to performance.” Prof. Burton Malkiel, Princeton University, “A Random Walk Down Wall Street” Planning - Saving - Investing For Retirement Sandy Says: “Chasing Yesterday’s Winners”
  7. 7. Quick Take # 1: Who Can You Believe? In the February 2006 issue of Fortune magazine, we found two conflicting views on which way the stock market will move in 2006. In conflicting view #1, Wall Street’s big-name strategists remain overwhelming bullish. “Abby Joseph Cohen of Goldman Sachs, Henry Dickson of Lehman Brothers and Tobias Levkovich of Citigroup, for example, all predict that the S&P will rise almost 10%, to 1,400 this year.” However, in conflicting view #2, “Mark Arbeter, chief technical strategist at Standard and Poor’s, expects the S&P 500 to fall 10% to 20% in 2006. Rick Bensignor, chief technical strategist at Morgan Stanley, also thinks stocks will tumble, most likely in the middle part of this year” (now). “We will have a major correction, if not a bear market.” These Wall Street experts have conflicting views of the same market that they, you and I invest in. Which view is the correct one? Come January 1, 2007, you can be sure that one of these experts will tell us he/she was right with his/her prediction. That’s the problem with Wall Street. They can tell us they were right with their prediction after the news is in. What can they tell us about the future? Forget about it. Their opinion and $3.50 might buy you a good cup of latte. And while you and I are sipping away, we can determine for ourselves if this is a “buying” or a “selling” opportunity. “ Investing without research is like playing stud poker and never looking at the cards”. - Peter Lynch, former manager, Fidelity Magellan fund Quick Take #2: Average Investors Earn Less Bill Schultheis, the Coffeehouse Investor, in his weekly Portfolio Ponderings, highlights the problems that the average investor copes with when faced with a wide array of stocks and mutual funds to choose from. Schultheis looked at a report from Mercer Investment Consulting and found that for the 10-year period ending 2004, the stock market returned 11.92 percent. Foundation and endowment funds generated an annualized return of 11.3 percent, compared to the average individual investor who captured a return of only 6.2%”. Schultheis is convinced that one of the primary reasons why institutional fund returns are so much higher than individual investors “is because these entities have a game plan for their portfolio – and stick to it.” The foundation and endowment funds have a written “Investment Policy Statement” (IPS) guide their investment decisions “instead of allowing their emotions of fear and greed to rule the day.” Schultheis recommends that the average investor create his/her own Investment Policy Statement. He adds that the Statement should serve as a blueprint to guide your investment choices. “This document will go a long way toward simplifying the financial planning process, and reducing, if not completely removing your emotions from your decisions.” Schuthies states that the Statement should include a summary of your investment objectives “because it will guide your asset allocation decision and corresponding degree of risk within your portfolio.” “Your IPS should indicate the asset classes that will be included in your portfolio, and target guidelines on when these asset classes will be rebalanced.” “ Planning is bringing the future into the present so that you can do something about it now.” Alan Lakein, a leading expert on personal time management. - 7 - Sandy Cartoon: Wife Camille: Does your stock broker always listen to you? Sandy: What do you mean by listening? Camille: Just last week I was talking to our broker and he was so intent on what he was doing, looking down at his papers, I don’t think he heard me. Sandy: So, what did you do? Camille: I finally said, “Jim, the sky is falling.” Sandy: And what did he say? Camille: He just casually looked up and said, “Well then, let’s just sell the Sky.”
  8. 8. - 8 - This newsletter intends to present factual up-to-date, researched information on the topics presented. We cannot make any representation regarding the accuracy of the content or its applicability to your situation. Before any action is taken based upon this information, it is essential that you obtain competent, individual advice from an attorney, accountant, tax adviser or other professional adviser. Information throughout this newsletter, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. No party assumes liability for any loss or damage resulting from errors or omissions based on or use of this material. <ul><li>Quotable Quotes </li></ul><ul><li>“ My problem isn't with lists, because a list of funds can be a terrific starting point and tool; instead, I take issue with </li></ul><ul><li>fund lists that come attached to headlines like ‘100 Funds to Buy Now.’ Most investors need just a few mutual funds, carefully picked, watched and managed over time. Too many investors have portfolios bloated with yesterday's winners -- culled from these lists -- and are in the awkward position of having lost some confidence in the funds, while still believing the fund must be good.” Chuck Jaffe, CBSMarketWatch.com </li></ul><ul><li>“ Don't appear so scholarly, pray. Humanize your talk, and speak to be understood.” Moliere 1622-1673, French Actor, Playwright and Writer </li></ul><ul><li>“ Five minutes of today are worth as much to me, as five minutes in the next millennium. Let us be poised, and wise, and our own, today.” -Ralph Waldo Emerson 1803 – 1882, American essayist, poet, and philosopher </li></ul><ul><li>“ With the stock market averages consistently outperforming 75 to 85 percent of all managed mutual funds, it is a tribute to the massive marketing machine of Wall Street that so many investors spend so much time and effort trying to select the top mutual funds.” Bill Schultheis, The Coffeehouse Investor </li></ul><ul><li>“ You gain strength, courage, and confidence by every experience in which you really stop to look fear in the face. You are able to say to yourself, ‘I have lived through this horror. I can take the next thing that comes along.’ You must do the thing you think you cannot do.” -Eleanor Roosevelt 1884 – 1962, wife of President Franklin Roosevelt. </li></ul><ul><li>“ Data from Standard & Poor demonstrate that a significant number of large-,mid-and small cap (mutual fund) managers failed to beat their indexes over three and five year periods. Over the past three and five year periods, the S&P 500 Index has outperformed 69.4% and 63.6% of large cap funds respectively.” James B Stewart, SmartMoney, January 2006 </li></ul>Stock Market – Investment Humor A stock analyst and a Wall Street broker went to the races. The broker suggested they bet $10,000 on a horse. The analyst was skeptical, saying that he wanted first to understand the rules, look at the horses, the condition of the track. The broker whispered that he knew a secret strategy for the success, but he could not convince the analyst. &quot;You are too theoretical,&quot; he said and bet on a horse. Surely, that horse came first bringing him a lot of money. Triumphantly, he exclaimed: &quot;I told you, I knew the secret!&quot; &quot;What is your secret?&quot; the analyst asked. &quot;It is rather easy. I have two kids, three and five years old. I sum up their ages and I bet on number nine.“ &quot;But, three and five is eight,&quot; the analyst protested. &quot;I told you, you are too theoretical!&quot; the broker replied, &quot;Haven't I just shown experimentally that my calculation is correct?” For additional information or if you have any questions, contact, Robert R. Julian, Retirement Planning Consultants, 313 Blackstone Avenue, Ithaca, New York 14850, (607) 255-4405, email: rrj1cornell.edu. Visit our website at retirementplanningconsultants.com Retirement Planning Consultants provides a number of resources designed to help individuals make informed decisions on planning – saving – investing for retirement. We offer unbiased and easy-to-understand information from an impartial outside source. We’ve been doing that for almost 30 years. Our “Planning – Saving – Investing For Retirement” workshops have helped thousands of individuals.
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