The media has reported that $Trillions are sitting idle on the sidelines, presumably waiting for some sort of buy signal in this economic mess. Even worse, much of that cash is paying a premium to use the government’s mattress, since real (after inflation) returns on Treasury bills are negative. So how can advisors help their clients put that pile of dough to better use? Here are a few thoughts.

1. The ultra wealthy may want to use this opportunity to “lock in” certain purchases that are planned for the future, like college funding or that next yacht. This “pockets of money” approach has been described and advocated by academics for a long time now. In its simplest form, the client purchases Treasury Inflation Protected Securities (TIPS) with a face amount equal to the future expenditure, maturing on the date that the expenditure is anticipated. Variants on this theme employ call options to sweeten the pie with some participation in the stock markets if they go up.Read More

My advice for # of target date providers is one provider as long as it’s the best and I think the best target date fund design emphasizes preservation near the target date, so the list is extremely short, like one or two. The risk to the fiduciary lies mostly in the accounts that are defaulted into target date funds. I think fiduciaries should be held accountable for defaulting employees into anything that can lose money near the target date, when account balances are at their highest and the ability to continue working is limited. Where’s the “landing” in the target date “glide path.” Prior to the establishment of target date funds as Qualified Default Investment Alternatives the common default was Stable Value.The risks of providing more than one target date fund are akin to  the risks of giving your child more than one toy, which is not much if they’re all safe toys but it only takes one choking toy to ruin the day. Fiduciaries can and should strive for the best. Since TDFs are QDIAs plan sponsors think any QDIA is a safe harbor, so they’re all good – regulatory prudence. Or if they are concerned about picking a particular TDF, how can they go wrong with the name brands everyone else uses, like Fidelity, T. Rowe & Vanguard– procedural prudence. Also, Plan Sponsor magazine has determined that most plan sponsors base their TDF selection on their advisor’s recommendation – delegated prudence.Read More

Never complain about what you permit.– Anthony de Mello, AuthorIntroductionIt’s July and time to review market behavior in the first half of the year. I will do that here, but a lot of other things are changing that I’d like to discuss with you – changes that you may or may not want to complain about. As the quote above states, permission is approval.In addition to my customary market review, this commentary also covers some changes that have occurred recently:

• The effects of the credit crisis on financial stocks and their styles. Do you view financial stocks as value or growth?
• The emerging interest in “core” investing. Are you using core in your portfolios? Which “flavor”?
• The Congressional buck-passing to the SEC of the broker-fiduciary standard. Are you a fiduciary or a salesman?
• The SEC’s unanimous approval of a proposal for target date funds. What does it mean?

I’d really like to turn this discussion into a dialogue with you. Please let me know what you think.Read More

Did you know that:

• There is a “Risk Zone” in investing for retirement. It’s the five to ten years leading up to and immediately following retirement, when your account is most susceptible to lifestyle risk. This is the period when savings are at their highest level, and your only response to loss is a reduced standard of living since going back to work is generally not an option. It is the reason that the focus was on 2010 funds at the joint SEC/DOL June, 2009 hearings on target date funds.

• Target date funds have a wide range of equity exposures in the Risk Zone. They disagree about the appropriate level of risk. Prior to this dangerous period, most target date funds are allocated about the same. When viewed over the continuum of their lives, TDFs look deceptively similar; their hidden risk is only visible when one examines the Risk Zone. Accordingly, enlightened fiduciaries should focus on the Risk Zone in their TDF selection.Read More