Luke F. Delorme
Articles from Luke F. Delorme
I was recently at a lecture about investing and the inevitable question was posed to the lecturer at the end of his presentation: “So, how are YOU invested?”
The question came from a good place. The attendee just wanted to know how the lecturer applies his knowledge to his actual investments. The problem is that the lecturer’s answer is probably irrelevant to the attendee.
Investors have to choose between funds that are actively managed and those that are passively managed. Active management involves selecting individual stocks or timing the market just right, in an attempt to do better than everyone else. An active mutual fund manager might analyze all of the stocks in the S&P 500 and pick the 50 of them that he or she believes will outperform the rest.
Since its enactment in 1935, Social Security has become an important feature of the retirement landscape for all Americans. But its finances are in need of repair. Despite the significant taxes already paid into the Social Security system, future benefit payments are expected to both outrun future tax revenues and consume any accumulated surplus (Chart 1).
As we covered at the end of last year, the rules for Social Security have recently changed. The new rules mean the strategy of filing and suspending your benefits will no longer be beneficial for married spouses. But there is a window for some people to be grandfathered in under the old rules. Now, we have some of the details and deadlines.
Target date funds are investment vehicles that have gained popularity with regular people but get mediocre marks from investment advisers. Offered by most fund families (Vanguard, T. Rowe Price, Fidelity, etc.), they are frequently included as an offering in 401(k) plans. According to Morningstar, investors had about $700 billion in target date funds at the end of 2014, although their growth is slowing. There's a lot to like about target date funds.
Through Thursday, the S&P 500 Index was down about 8.6 percent during the month so far. To put this in perspective, the worst January in S&P 500 history was 2009. In January 2009, the market fell 8.6 percent. We’re on pace for a January stock market loss as bad as we’ve ever seen. What lessons can we glean from historical data?
When I started my first job with a 401(k) plan, I remember looking at the options and seeing these words in the fund names: Value and Growth. I had some investing experience, so I knew that I should diversify across asset classes. But it sure was tempting to pick those funds with the flashy names. Something like “Goldman Sachs Growth Opportunities” sounded so promising. As it turns out, those titles aren’t terrific indicators of how well funds might perform.
As you approach retirement, you’ll likely spend countless hours thinking about how and where to invest after you stop working. Should you get more conservative with your investments? What amount of risk can you tolerate at this stage of life? Should you buy an annuity? These are all important questions about how to finance retirement, but they ignore a critical component of success: How should you withdraw your money from savings?