Google Insight - A Useful Tool For the Do-It-Yourself Investor

What's on Mr. Market's mind? Everyday talking heads and pundits of all kinds expound on what's moving the market. They inevitably have numerous reasons after the fact on why the market did what it did that particular day. And they are always perfectly logical except, of course, when they say there were more buyers than sellers, or vice versa.

Instead of listening to the pundits expound, another way to assess what is pushing around prices is to see what people are searching online. This is where Google Insight can give some, well, insight. Begin by going to Google Insight and type in a phrase that you think investors will be searching, such as "Bush tax cuts". This is what you get:


Note the recent spike on the right hand side of the graph. Obviously investors are vitally interested in learning about the tax cuts and various views on whether they will be extended.

By typing in "financial regulation bill," "Greece default," and "double dip recession," you can see by using Google Insight other issues of interest to market participants and observers.

Google Insight is another useful tool for the do-it-yourself investor.

Portfolio rebalancing

One of the tasks facing the do-it-yourself investor is portfolio rebalancing to get back in realignment with the desired allocation. There is a good article on this at Smart Money. In the article, David Wray, president of the Profit Sharing/401(k) Council of America, says the two biggest mistakes 401(k) participants tend to make is to go more than a year before rebalancing and not contributing enough to receive the full employer match.

Coming up with the contribution to receive the full matching amount can admittedly be a problem sometimes. The rebalancing part is actually easy - especially in this age of low-cost exchange traded funds and available technology - if you willing to take a deep breath and deal with percentages and a pie chart.

I first look at the overall allocation- percent in stocks and percent in bonds. If it is 5% out of whack, I look to rebalance. So, for example, if 70% stock and 30% bonds is the desired allocation and markets have moved the portfolio to 75% stocks and 25% bonds, then we need to reduce stocks and add to bonds. Over the long term, this is a subtle means of buying low and selling high - it adds incrementally to return. In a simple portfolio, sell at least 5% of your SPY (etf tracking S&P 500) and buy AGG or BND (etfs tracking the bond market) with the proceeds.

Once this is determined, I look inside the broad classifications. If small cap stocks did especially well, then that would be the stock sector that would get most of the reduction. In the fixed income area, if the high yield portion had underperformed, that's where I'd add.

All of this sounds a bit more complicated than it is. In fact, I have to admit that I am surprised at the implied procrastination by David Wray's points. With Charles Schwab (as I would assume it is with most brokers), it is trivial to set up a portfolio of all your accounts, pick a desired asset allocation and then, by hitting a button, see the allocation in percent terms or as a colorful pie chart. In a matter of seconds, you can determine if you're off by more than 5%.

If you're not sure how to set this up and do it, you should contact your rep and have it explained to you. After all, this is your retirement that we're talking about.

How Does Your 401(k) Measure Up?

Analyzing a 401(k)

Readers of this blog know that one of the main messages is that the financial services industry has a strong tendency to grossly overcharge for its services. The industry takes advantage of the gullible public that refuses to educate itself on how much it costs to get professional money management services. The bottom line is that a big part of workers' nest eggs are lining the pockets of fat cat advisors. Nowhere is this more prevalent than in 401(k)s. But how can you assess your 401(k)?

Brightscope

An important resource to check is to go to www.brightscope.com. Put in your company name. If you are fortunate, your company 401(k) is rated. If it isn't, you may want to consider asking your human resources department why it isn't.

CLICK IMAGE TO ENLARGE. As you can see, there are a number of categories rated. Of interest in this plan is the "Investment Menu Quality" rating of "poor."

If you go a step further and complete the free registration, you get even more detailed information. You can actually put in specific information to see the true cost to you, the participant, in the plan.

CLICK TO ENLARGE. If you drill down, you can find costs for the portfolio and the costs of funds in your peer group that have superior investment choices. With the information provided by this service, there are explicit steps that can be taken to improve one of the most important benefits provided to workers. It is an excellent resource to lead to the right questions for employees to ask.

This is also a useful resource if you are wrestling, à la Mickey Rourke, with whether you should roll over your old company 401(k).

Who do you write like?

Go to LINK . Paste in text and see who you write like. It tells me I write like James Joyce. Yikes!!! I tried Ulysses 3 times and got nowhere. Oh well...something to work on.

Who do you write like?

Single Premium Immediate Annuity

In surveys the number one fear of seniors is the fear of running out of money. To combat this fear, many turn to single premium immediate pay annuities.

How to Get a Ballpark Estimate on the Payout of a Single Premium Immediate Pay Annuity

Go to http://www.immediateannuities.com
.

Fill in the data as shown with your own info: (CLICK IMAGE TO ENLARGE).

Here we have put in $100,000 and the ages of 65 for the annuitant and his wife. Click "calculate." The first and most basic option pays $626/month ( as this is written) as long as the annuitant lives. If the annuitant dies the day after signing the contract, the insurance company keeps the $100,000. If the annuitant lives to be 120, the insurance company has to make monthly payments over that entire period.

You'll notice added features on the page. Whenever something beneficial is added, the payout decreases. In general, annuities are not heir friendly. To add features that leave something to heirs reduces the monthly payout. Also notice the payout for females is less. The reason is simple--women live longer.

Three points worth knowing and remembering:

-the payout depends on interest rates. As rates rise, the payout will increase.
-putting some portion of assets in an annuity in retirement reduces the risk of running out of money in old age.
-the long-term financial viability of the insurance company issuing the contract is important.

When to Retire

Many things in financial planning and investing appear upside down. This, of course, is what makes it interesting. When is the best time to buy? According to the famous and wildly successful Baron von Rothschild, it's when there is "...blood in the streets." Not to digress too much (I apologize for trekking afield but this has stuck in my craw for a long time - the Rothschilds didn't take a lot of risk), but his most well-known coup was trading on the inside information of Napoleon's defeat provided by his swift carrier pigeons not on contrary trading. But, still, the original point has been the basis of contrarian investing over the years.

At the other end of the spectrum, investors are told to lighten up when all the news is positive and averages are hitting new highs.

This upside-down idea applies to the question of when to retire, as well. The mistake a lot of people make is to feel comfortable in retiring after a push up in the market has produced the magic "number." They then retire, and watch in horror as the value of their portfolio drops in a down market and the "number" fades into oblivion. On the other hand, when news is negative, as it is today, and markets have dropped, people are fearful of retiring. But, if the financial plan works today, after the market has experienced a meaningful downturn (and stock prices are at more reasonable levels), it is very likely a good time to retire. As long as a solid strategy is in place to ensure that cash flow needs can be met over the next couple of years without having to liquidate stocks and bonds in down markets, retirees should be able to weather the storm.

Having said all this, it goes without saying that there are no guarantees. Talk is increasing that we are on the verge of another period like the 1930s, that the next shoe to drop is a serious deflation, and that our monetary and fiscal policies are failing us. This view can't be dismissed; but I, along with most observers, still see this as a low-probability event.

It has to be said , of course, that if we are moving into a 1930s type period, then retirement is a bad idea. Work as long as you can.

What do you think?

We're Not in Lake Wobegon

It is no big secret that, over the long term, individual investors do poorly. This is emphasized each year when Dalbar produces their annual quantitative analysis of investor behavior. They found for the 20 years ended in December 2009

" equity fund investors averaged 3.17% compared to 8.20% for buy-and-hold stock investors (S&P 500)."

Long term market observers understand that this is due to emotions coming to the forefront in major market moves and an over-weighting of recent events in expectations. This is nicely illustrated by William J. Bernstein in "The Investor's Manifesto". In fact, Berstein said

" I believe most folks are about as capable of managing their retirement portfolio as they are of flying their own airliners or taking out a relative’s appendix."

In the book he tells of a Gallup poll conducted before and after the 1987 Russian bond default. In the poll, investors were asked how they thought they would perform along with market performance. This was a period of strong returns interrupted by the Russian default.

Expected Returns	June 1998	September 1998
Next year, own portfolio	15.2%	12.9%
Next year, overall U.S. market	13.4%	10.5%

One needs to read Garrison Keillor, glance at the Dalbar findings above and look at the table all pretty much simultaneously to appreciate what is going on. There are a lot of investors apparently who believe they are above average.

Furthermore one wonders what such a poll would look like today. Bernstein points out that investors expect higher returns after prices have risen but common sense tells you that higher returns will result by buying in at low prices.
We're not in Lake Wobegon but investors just don't know it.