Frontline: The Retirement Gamble

[Polish_Silver]

Financial Professionals are Clueless!

The average American 401K holders pays $155,000 in fees -- several of which are hidden -- for investments that are no better, and usually worse, than cheap indexed funds . . . .

The Retirement Gamble http://www.pbs.org/wgbh/pages/frontl...rement-gamble/

Pass this one on to your non-economically savvy friends . . . they will get it.

Wednesday night I could not sleep.

That evening I went to a discussion organized by the leader of a small, local financial firm.

Here was his message:

The financial crisis was caused by unethical, but not criminal, behavior.

We need better regulation. The pendulum swings between too much and too little regulation.

The bond rating agencies are being more careful now. Workers are afraid they will be fired if they over rate the bonds. The bond ratings are relative. They give no quantitative judgement of default risk. That is how it should be.

There is no fundamental problem in the way the financial system works, or in the incentive structures.

His big investment idea is to buy apple stock.

He had not even heard of MF global/Corzine.

He said the he was long on bank stocks in the fall of 2008 and lost a lot of money on them.

He said that Wall Street insiders did not know a collapse was coming, and that some of them ( I think he mentioned Fuld) were almost wiped out.

I lost my temper on this one, saying "If I am head of a major finacial firm, pulling down millions in annual salary, I think part of my job is spotting a bubble! "

I tried to explain how a non-leveraged banking system would work. I thought I was getting no where, but one of the people in the group came up to me later and thanked me for speaking out.


If POZ sees this he will say "Silver, what do you expect?"

I've got an answer: "A much higher degree of competence!"


Even assuming that finanical behavior was unethical/incompetent, but not criminal, in any industry but FIREM, those people would be out of a job.

If you were a finance professional, and you were long bank stocks in the middle of the biggest housing bubble in history, you would think you would either change professions or do some serious reading to re-educate yourself.

I have thousands of wallet size cards explaining kotlikoff's idea for reforming banks, if anyone is interested.

I could sleep thursday night.

That evening I went to a forum of local engineers. There I heard how to make precision stampings in steel up to 1 cm thick. I heard how transmission housings are made, and how nuclear reactors could be retrofitted with "passive cooling" to prevent any Fukushima like accidents.

But the main presentation was about how, during the cold war, both the United States and the Soviet Union had civil engineers running around Latin America doing public works projects to "win the hearts and minds" of the citizens there. The best one was a hospital ship which went around lake Titicaca serving the medical and dental needs of the indigenous peoples there. It was originally a barge for carrying tanks, but had a long service life as a hospital ship.

[lektrode]

Re: Financial Professionals are Clueless!

Wednesday night I could not sleep.

That evening I went to a discussion organized by the leader of a small, local financial firm.

Here was his message:

The financial crisis was caused by unethical, but not criminal, behavior.

We need better regulation. The pendulum swings between too much and too little regulation.

HAHAHAHAHA!!!!!!
hilarious!
can just imagine who he voted for in both '08 and '12

The bond rating agencies are being more careful now. Workers are afraid they will be fired if they over rate the bonds. The bond ratings are relative. They give no quantitative judgement of default risk. That is how it should be.

There is no fundamental problem in the way the financial system works, or in the incentive structures.

His big investment idea is to buy apple stock.

He had not even heard of MF global/Corzine.

huh?
right - always ignore the obvious when attempting to BS the audience.
esp when 'from 40000feet, nothing looks illegal'

He said the he was long on bank stocks in the fall of 2008 and lost a lot of money on them.

He said that Wall Street insiders did not know a collapse was coming, and that some of them ( I think he mentioned Fuld) were almost wiped out.

uh huh.... from this we can assume - obviously - that HIS advice is sound... 'as the dollar' ???
just hilarious, that we _still_ have schmucks like this clown still able to draw em in.

I lost my temper on this one, saying "If I am head of a major finacial firm, pulling down millions in annual salary, I think part of my job is spotting a bubble! "

I tried to explain how a non-leveraged banking system would work. I thought I was getting no where, but one of the people in the group came up to me later and thanked me for speaking out.


If POZ sees this he will say "Silver, what do you expect?"

I've got an answer: "A much higher degree of competence!"


Even assuming that finanical behavior was unethical/incompetent, but not criminal, in any industry but FIREM, those people would be out of a job.

never mind if it had been say, some industry like... maybe... oh.. i dunno, like say 'BIG OIL'
had just crushed the economy - not once, but TWICE IN 10 YEARS???
JUST IMAGINE HOW MANY HEADS WOULD'VE ROLLED, REPUTATIONS WOULD'VE BEEN RUINED

but instead - what happened???(when one of the dems most favored industries thoroughly f___ked The Rest of US)

they get bailed out, wall street got the gold mine - to the tune of TRILLIONS - while We, The People of main street GOT THE SHAFT

and douchebags like this still get any credence whatsoever.....

and the lamestream media continues to run blocking/cover for them.

If you were a finance professional, and you were long bank stocks in the middle of the biggest housing bubble in history, you would think you would either change professions or do some serious reading to re-educate yourself.

I have thousands of wallet size cards explaining kotlikoff's idea for reforming banks, if anyone is interested.

I could sleep thursday night.

That evening I went to a forum of local engineers. There I heard how to make precision stampings in steel up to 1 cm thick. I heard how transmission housings are made, and how nuclear reactors could be retrofitted with "passive cooling" to prevent any Fukushima like accidents.

But the main presentation was about how, during the cold war, both the United States and the Soviet Union had civil engineers running around Latin America doing public works projects to "win the hearts and minds" of the citizens there. The best one was a hospital ship which went around lake Titicaca serving the medical and dental needs of the indigenous peoples there. It was originally a barge for carrying tanks, but had a long service life as a hospital ship.

imagine that - constructive solutions to BIG/real problems?

GASP!!!

;)

thanks silver - every once in awhile we see some good news, for a CHANGE we might be able to believe in

[santafe2]

Re: Frontline: The Retirement Gamble

As far as investing in real estate, counting on appreciation may be a fool's errand as well, making the old prescription of breaking even while waiting for asset appreciation untenable. Everywhere you look investing is daunting.

You're right, nothing is completely safe but real estate almost anywhere away from the coasts is at a low point now that makes it more safe and rents produce 3-4% after tax and grow at about 2% per year...that's 2% of 3-4%, not 2% added to 3-4%. The net returns are low but, as Mark Twain said, "I am more concerned with the return of my money than the return on my money." One can make the argument that there will be financial collapse in the US or runaway inflation but I don't see either of those outcomes as likely. In that case, we will continue to limp along for a long time. Without a collapse or hyper inflation, real estate values won't move much below a cap rate of 10% in a good neighborhood. There is too much money looking for returns in that range.

[Polish_Silver]

Re: Financial Professionals are Clueless!

Thanks for reading my post Lektrode. I really had to get it off my mind.

I think engineers are forced to solve difficult problems, and if they get it wrong,
there is no escaping responsibility. It imposes a discipline and integrity on
people far different from financial types.

[don]

Re: Frontline: The Retirement Gamble

You're right, nothing is completely safe but real estate almost anywhere away from the coasts is at a low point now that makes it more safe and rents produce 3-4% after tax and grow at about 2% per year...that's 2% of 3-4%, not 2% added to 3-4%. The net returns are low but, as Mark Twain said, "I am more concerned with the return of my money than the return on my money." One can make the argument that there will be financial collapse in the US or runaway inflation but I don't see either of those outcomes as likely. In that case, we will continue to limp along for a long time. Without a collapse or hyper inflation, real estate values won't move much below a cap rate of 10% in a good neighborhood. There is too much money looking for returns in that range.

100% in agreement on tangible assets versus "liquid" investments. Need to talk to the big boss about putting some savings into dressing up our art collection, i.e. framing a number of originals. Better a storage facility full of saleable art than a pile of plunging bonars.

[santafe2]

Re: Frontline: The Retirement Gamble

100% in agreement on tangible assets versus "liquid" investments. Need to talk to the big boss about putting some savings into dressing up our art collection, i.e. framing a number of originals. Better a storage facility full of saleable art than a pile of plunging bonars.

That's all I try to do. Look at all the major asset classes and decide what looks best for the next decade or so. Sometimes they all look bad and you just hang on to $$. I don't remember exactly when, but early on in my time here EJ suggested that it was a good time to buy 10 year bonds. In retrospect, investing in 5% bonds in maybe 2007 was a great idea. Today the government wants to punish US$ savers, we should get the message and find other places to invest.

[raja]

Re: Frontline: The Retirement Gamble

I'm investing in real estate. It's simple, personal and local.

And . . . it's REAL.

There's nobody who has control of your asset but you.
Your asset can't get ripped off; the house and the land will always be there (you need to have fire and storm insurance).
As long as you don't sell it, you are protected from hyperinflation, deflation and inflation tax.
Your income is indexed to inflation (over the long run).
The house and the land are not going to disappear if the economy crashes.

Of course, the renters can rip you off, but and there are ways to somewhat protect yourself against that -- like a full month's deposit and a weekly lease. For convenience you can have them pay you monthly, unless they fail to make a payment, then you demand weekly payment. (Here in TN, with a weekly rent you can give a Notice To Vacate in 15 days.)

As for shiny!'s concern about property taxes . . . .
Many people own homes, and there is a limit as to how far governments can go in inflicting higher property taxes.
What I worry about is if government creates a two-tiered tax, in which property tax is lower on properties in which the owner lives, and higher on properties which are used for business.
But still, it can't go too far, because many people rent, so it wouldn't work to make rental property unworkable through higher taxes. Besides, landlords would just pass the property tax cost on to renters . . . .

[don]

Re: Frontline: The Retirement Gamble

That's all I try to do. Look at all the major asset classes and decide what looks best for the next decade or so. Sometimes they all look bad and you just hang on to $$. I don't remember exactly when, but early on in my time here EJ suggested that it was a good time to buy 10 year bonds. In retrospect, investing in 5% bonds in maybe 2007 was a great idea. Today the government wants to punish US$ savers, we should get the message and find other places to invest.

Very deliberately, the central bankers have punished savers, pushing interest rates so low that any truly safe investment — and older people are always advised to play it safe — yields a negative return when inflation is factored in.



British pensioners Judy White and her husband Alan

The policy has savaged pension and savings returns worldwide, but particularly in Britain, a nation of savers and pensioners.

There is more money in British pension funds than in the rest of Europe combined, and now that money is just sitting, "dead," as some call it, not working for its owners.

Ask Judy White, a retiree in her late 60s who lives in Teddington, south of London, with her husband, Alan.

This year, the Bank of England shattered her retirement. Her pension benefit was effectively slashed by half.

"I don't understand what quantitative easing is, except that it's printing money," she says. "But I do understand that I now have 50 per cent less.

"What they have done is take money from people who have been really careful all their lives."

from The War on Savers (CBC) http://www.cbc.ca/news/world/story/2...ft-savers.html

FIRE cannot create wealth, it can only transfer it

[shiny!]

Re: Frontline: The Retirement Gamble

As for shiny!'s concern about property taxes . . . .
Many people own homes, and there is a limit as to how far governments can go in inflicting higher property taxes.
What I worry about is if government creates a two-tiered tax, in which property tax is lower on properties in which the owner lives, and higher on properties which are used for business.
But still, it can't go too far, because many people rent, so it wouldn't work to make rental property unworkable through higher taxes. Besides, landlords would just pass the property tax cost on to renters . . . .

And when it gets to be too much? The renters move out. Businesses go out of business or move to smaller quarters.

We'll see a return of the multi-generational home with parents, grandparents and grandchildren living under the same roof again (not a bad thing IMO). Three households combined into one, with two homes sitting empty. And if it's your home that's empty but you still have to pay the property tax...

A great while back I read that during the Great Depression some parts of the country raised property taxes so high that they almost matched the value of the property itself. I don't know if this is true or not. I've tried to find a reference to corroborate this but am so far unsuccessful.

[ProdigyofZen]

Re: Frontline: The Retirement Gamble

100% in agreement on tangible assets versus "liquid" investments. Need to talk to the big boss about putting some savings into dressing up our art collection, i.e. framing a number of originals. Better a storage facility full of saleable art than a pile of plunging bonars.

The thing is, liquid investments you can exit in a day....

[flintlock]

Re: Frontline: The Retirement Gamble

Higher risk, higher reward still applies. Nothing new here. There is still no trick to getting around this traditional relationship. RE is "relatively" risky in some ways. But then so are Stocks. What keeps me out of RE is factors like renters, low liquidity, growing govt hunger for higher taxes, etc. Most other investments won't call you Sunday night with a complaint. I see a lot of the downside of being a landlord in the course of my business, so maybe I'm a bit biased in that regard. And a lot of those problems are avoidable with the proper due diligence. I just figure I already have enough invested in my home to consider it a hefty investment in RE . Not one to put all my eggs in one basket. But I can see why someone would go with RE.

[flintlock]

Re: Financial Professionals are Clueless!

Wednesday night I could not sleep.

That evening I went to a discussion organized by the leader of a small, local financial firm.

Here was his message:

The financial crisis was caused by unethical, but not criminal, behavior.

We need better regulation. The pendulum swings between too much and too little regulation.

The bond rating agencies are being more careful now. Workers are afraid they will be fired if they over rate the bonds. The bond ratings are relative. They give no quantitative judgement of default risk. That is how it should be.

There is no fundamental problem in the way the financial system works, or in the incentive structures.

His big investment idea is to buy apple stock.

He had not even heard of MF global/Corzine.

He said the he was long on bank stocks in the fall of 2008 and lost a lot of money on them.

He said that Wall Street insiders did not know a collapse was coming, and that some of them ( I think he mentioned Fuld) were almost wiped out.

I lost my temper on this one, saying "If I am head of a major finacial firm, pulling down millions in annual salary, I think part of my job is spotting a bubble! "

I tried to explain how a non-leveraged banking system would work. I thought I was getting no where, but one of the people in the group came up to me later and thanked me for speaking out.


If POZ sees this he will say "Silver, what do you expect?"

I've got an answer: "A much higher degree of competence!"


Even assuming that finanical behavior was unethical/incompetent, but not criminal, in any industry but FIREM, those people would be out of a job.

If you were a finance professional, and you were long bank stocks in the middle of the biggest housing bubble in history, you would think you would either change professions or do some serious reading to re-educate yourself.

I have thousands of wallet size cards explaining kotlikoff's idea for reforming banks, if anyone is interested.

I could sleep thursday night.

That evening I went to a forum of local engineers. There I heard how to make precision stampings in steel up to 1 cm thick. I heard how transmission housings are made, and how nuclear reactors could be retrofitted with "passive cooling" to prevent any Fukushima like accidents.

But the main presentation was about how, during the cold war, both the United States and the Soviet Union had civil engineers running around Latin America doing public works projects to "win the hearts and minds" of the citizens there. The best one was a hospital ship which went around lake Titicaca serving the medical and dental needs of the indigenous peoples there. It was originally a barge for carrying tanks, but had a long service life as a hospital ship.

I don't think we hold people personally responsible for their actions in general in this country anymore. If not legal responsibility, people at least used to care about social ramifications. Today, money trumps all. If you can make money, it's all good. All is forgiven. Some people approach their jobs today from their own sense of need. "So what if I'm incompetent, I need the money". And you are supposed to just go along with it.

[raja]

Re: Frontline: The Retirement Gamble

And when it gets to be too much? The renters move out. Businesses go out of business or move to smaller quarters.

We'll see a return of the multi-generational home with parents, grandparents and grandchildren living under the same roof again (not a bad thing IMO). Three households combined into one, with two homes sitting empty. And if it's your home that's empty but you still have to pay the property tax...

I'm not saying the governments won't do stupid things that are ultimately against their own self-interest. But . . . .

When taxes get too high, people revolt . . . so there is a limit.
With property taxes, you're not dealing with a minority interest group . . . everybody is either a home owner or renter. So there will be a lot of political pressure to keep taxes reasonable.

Unless you've got government "nationalizing" housing, they can't raise property taxes so high that they force lots and lots of people out of their homes . . . either homeowners who live in their houses, or landlords who can no longer afford to rent their properties because of high taxes.

So I think there will be a natural limitation as to how high property taxes can go.

That being said, I foresee times during high economic stress when either I won't be able to collect rent, because nobody will have much money, or the rents that I collect will be very low. Like other assets, there will be times of no or little profit. That's why I recommend that leverage be avoided. If you don't have leverage, you'll always be able to charge less rent that a landlord that has to use the rent income to pay the mortgage.

Even if property taxes double and rents went down 50%, I'd still be able to more than cover costs. And in economic times such as that, renters would understand why I might be able to afford certain repairs or maintenance.