Thursday, January 31, 2008

Interrogating my financial planner

Money Magazine's anonymous financial planner provides a list of questions to ask your financial planner to gauge his or her style and truthfulness. I posed these questions to my financial planner, who is of course me.

1. What was your largest mistake over the past 10 years?
Being too conservative after the market declines of 2000-2002 and not getting back into stocks in 2003.

2. Do your financial incentives always line up with my best interests?
I sure hope so.

3. How have your clients' portfolios performed over the past 10 years?
Only slightly better than the S&P 500, unfortunately.

4. If I wanted to buy a couple of broad index funds or ETFs, which would you recommend?
Something by Vanguard.

Wednesday, January 30, 2008

130/30 performance update

Long-short funds are down, but not as much as the S&P, says a story in the Journal (free WSJ Digg link).

Long-short funds are down, on average, about 4.2% over the past three months through Monday, compared with the Standard & Poor's 500-stock index's 11.4% decline, according to Morningstar Inc. The period roughly corresponds to the stock market's plunge from its Oct. 9 high.

In fact, long-short funds have performed better than every other category of stock funds that Morningstar follows during that period, except "bear market" funds, designed specifically to profit when the market falls.

Still, being down is being down.

Update: Random Roger had a post on the article.

Saturday, January 19, 2008

Raising children with wealth

I am of the opinion that children must be raised so that they will independent when they become adults. Children shouldn't be spoiled (says the man who already wants to give his one year old child everything). How do you do this if you are blessed with great wealth?

New York magazine examined the subject with a recent article. Interviewees for the article included Jordan Roth, son of the CEO of Vornado Realty Trust; Jamie Johnson, a J&J heir (who has made a documentary about the subject, Born Rich); Tommy Gallagher, CEO of an investment group; and Holly Peterson, daughter of a Blackstone Group founder.

The Holly Peterson tale was the best:

“It’s very simple: Either your parents are comfortable paying for everything in your twenties and letting you coast financially through that period or they are not,” says Holly Peterson, the daughter of Blackstone Group co-founder Pete Peterson, whose estimated net worth is $2.5 billion. She’s worked in television and print journalism since graduating from college and recently published The Manny, a satire of wealthy women on the Upper East Side. “Are your parents buying your apartment and giving you the clothing budget and giving you cash to go to J.G. Melon’s?” she continues. “My father didn’t. I couldn’t not work. When I was at ABC News making $32,000 a year as a researcher, my father was giving me $600 a month, which was the difference between a studio walk-up and a place with a doorman—he didn’t like those townhouses with the double doors that girls were getting attacked in.” To this day, Peterson still reimburses her father if she uses his car service. Recently, when The Four Seasons accidentally charged his account for something she ordered and sent to
friends who were dining without her, he faxed her the bill with a note that said
WHAT THE HELL????? “But in my twenties—that was when we used to argue a fair
amount about money: How much he would supplement, why he decreased the amount when I got a raise,” she says. “I would point out that in the last 30 seconds,
he had just earned in interest the amount I was asking for. And he would lean over the table and say, ‘I know you don’t understand this now, but the greatest gift I can give you is your independence.’ And twenty years later, I hate to admit this, but I think he was right.”
Warren Buffett isn't leaving his vast fortune to his children, but to a foundation. His children will have to work. The same holds true for Bill Gates.

For those that want to keep the vast family fortunes going from generation to generation, several resources are mentioned in the story, including Wealthbridge Partners, Family Wealth Alliance, Relative Solutions and Sudden Money Institute.

Sunday, January 6, 2008

Tanking asset prices

If you have more sellers than buyers, more supply than demand, prices fall. Will that happen as baby boomers retire? Here's the case:

At the core of concerns about the baby boomers' retirement is something economists call the "life-cycle hypothesis" of economic behavior: Most people tend to save little when young, build up savings during middle age, and then spend those savings in retirement.

That leads some savvy analysts to fret that the boomers' retirement will be marked by widespread selling of stocks and bonds. Jeremy Siegel, a professor at the University of Pennsylvania's Wharton School, has said his computer model shows that, absent help from overseas investors -- buying he does expect to cushion the blow -- the boomers' retirement could cause stock prices to fall 40% to 50%.

I've read stories with the same hypothesis in the past, but not just for stocks but for all asset classes and it's a little frightening. I'm just an armchair economist, but I don't think this catastrophe will come to pass. However, I am trying to diversify into non-U.S. and non-European assets.

Thursday, January 3, 2008

More on Health Savings Accounts

I've covered my decision not to use a Health Savings Account. Now comes another story asking if HSAs are right for you (free WSJ Digg link).

Not my experience

High-deductible plans have premiums that are often 20% to 25% lower than those of health maintenance organizations, usually the cheapest type of comprehensive plan.
This wasn't my experience with the HSA/consumer driven option I had. The premium savings were a little over 12%. These savings weren't nearly high enough. I hope in next year's options a 20-25% premium savings is available.

Young and healthy workers who are unlikely to incur many medical bills are most likely to benefit from high-deductible plans, says Wendy W. Bunnell, a benefits attorney and consultant in Minneapolis.

High-income individuals and families who can afford to pay their own medical bills with cash up to the deductible limit also may benefit. While paying for some care directly, they can use an HSA primarily to invest tax-free and fund medical care in retirement. (You can submit receipts for reimbursement at any time, even years after the money went into the HSA.)

I do see the benefits in using the tax-free money for retirement medical care, and the HSAs seem like a good fit for the mass affluent. I'll need more than a $500 premium savings to use for funding an HSA to make it worthwhile though.