Photo by PicketAces, Thomas Picard, Brooklyn, N.Y.
Active retail investors earn lower returns than their passive counterparts—it is a major theme here at Later Living. Today I’ll add one more argument for passive investing: active investing exposes retirees and others to greater likelihoods of dishonesty and conflicts of interest. Continue reading
An active investor. Photo from Celal Teber, Teber Photography, United Kingdom
A great deal!—to answer the title question. Three examples will illustrate the loss associated with active investing, or, stated positively, the gain from passive investing. The examples build on last week when I showed that active and passive investing had to achieve the same average gross returns. Yet active investing costs more, so in the end, the net returns to retirees are smaller with active investing.
Active investing links retirees with financial planners, brokers and actively managed mutual funds. Active investors believe they can identify low-priced stocks to buy, or that they can predict which stocks will drop in price so they can sell. In addition to individual stocks and bonds, they often buy actively managed mutual funds where a fund manager does the buying and selling. Continue reading
The Investment Race
Many retirees invest passively by buying shares in low-cost index funds that are designed to track selected markets. I have illustrated that approach in previous posts.
Many other retirees, and many younger investors, actively manage their investments. Some retirees do their own research and analyses while others hire brokers, financial planners or other advisers to manage their investments. They hope to achieve superior performance—to beat the market—by relying on extra effort, knowledge and skill. Continue reading
In midcareer, people need to get along at work, and in retirement people must get along with their investments. At work in middle life, and with investments in retirement, getting along includes people, but it also involves the circumstances, tasks, and procedures in each setting.
Retirees can manage their own investments as they managed their work, but to do so, they should grow familiar with their assets, understand asset allocation and rebalancing, and keep a steady discipline concerning withdrawals.
One good way to gain confidence with managing a retirement portfolio is to work through a model program year-by-year. Continue reading
Last week we added Real Estate Investment Trusts (REITs) to a retirement portfolio, and this week we add international investments. The completed portfolio will now have domestic stocks, domestic bonds, REITs, and international stocks. Just these four investments can carry a retiree a long way into efficient, reasonably stable returns.
Why international investments? Diversification and growth are the best answers. Fifty years ago the United States dominated the world of investment opportunities, but today many countries have growing economies, well-run innovative companies, and good opportunities for investing. Continue reading
Good investment literature always recommends diversification. It counsels investors to forget about trying to pick the next Apple or Microsoft. That is a guessing game, and the odds are against small investors. Here at Later Living, I have followed the literature and used example portfolios consisting of broadly diversified stock and bond index funds. Today I will include real estate, or REITs, in the retirement portfolio.
REITs are real estate investment trusts, and they owe their modern form to legislation enacted in 1960 and subsequently modified. REITs provide investors easy ways to participate in investments like apartments, office buildings, shopping centers, timberland, and others types of income-producing real estate. Continue reading
Last week the Federal Reserve published a study that made the news: between 2007 and 2010, Americans experienced a 39% decline in median net worth and an 8% decline in median income. The report is one of a series going back to at least 1989, but the new report shows an unprecedented decline in economic well-being.
Although the data are dismal, there is a lesson for Americans willing to fight: it’s time to return to the working and saving habits of American mythology where strong families work together toward common goals. Families will want to pull together into larger, more integrated economic units to help those affected recover and move forward.
The Huffington Post published the following piece on May 25. The idea—parents saving for their children’s retirements—left several readers frustrated. Yet parents have always been leaving bequests for their children; this piece recommends a specific type of bequest—a retirement account or annuity, left at death. I am reprinting it here as this week’s post.
The economy is not clicking along like it should—the recovery of the last few years is slow, halting, and uncertain. The United States now has a large cadre of long-term unemployed, and many of them are in their twenties and early thirties. Continue reading
Warren was recently interviewed for a short piece in Investment News about empowering individuals to manage their own investments.
Read the full article here. Free registration required, but if you don’t want to register, you can bypass registration by clicking here to Google search for “Warren Flick Investment News” and then clicking on the first result.
Investments can be complicated, but they don’t need to be. Investors just need to know their objectives and some intelligible ways to achieve them. Generally, investors want high returns and low risk. Once they achieve suitable exposure to both, rebalancing—maintaining balance among components—keeps investors on a steady course.
High returns usually come from owning stocks. History has shown that over long periods of time, stocks almost always out perform bonds, real estate, and many other investments. Alternatively, stocks are often risky.
Bonds usually produce lower returns, but they tend to be less risky. A portfolio that combines a diversity of stocks and a diversity of bonds is likely to generate good returns with only moderate risk. Continue reading