What does your 401(k) investments look like?

By Nate Tomkiewicz and Bill Schmick It might surprise you to know that many retirement savers religiously contribute to their tax-deferred savings plans but have no idea what investments they own. Many plan representatives simply suggest that if you don’t know, just invest in a target date retirement fund. Is this a good idea? Most 401(k)s and 403(B)s plans, for example, have between 20 and 30 investment options you can choose from. This menu of choices normally includes bond and stock funds as well as international funds. There are also balanced or blended funds, which invest in a mixture of stocks and bonds. Many plans also have some kind of annuity-like investment as well as target date funds. Supposedly, target date funds take the thinking out of investing. Let’s say you plan to retire in 2040, so you select a target date fund that approximates that year. The rule of thumb states that the closer you get toward retirement, the more conservative one should be. That means you should have more bonds than stocks (according to Modern Portfolio Theory) in your investment portfolio as you age. Each year you draw closer to retirement, the computer model that actually manages these funds simply put more bonds in your portfolio and less stocks. As a diligent saver who wants to make as much as one can before retirement, let’s look at the track record of bonds versus stocks over the last ten years. In this case we have used Vanguard’s intermediate term bond fund versus Vanguard’s S& P 500 Index fund. But wait, you may say, the last ten years stocks...

New highs beget new highs

Some people believe we are in a “melt-up.” It is where the simple weight of money pouring into the U.S. stock market continues to carry stocks ever higher. Whether that qualifies as an investment thesis, or simply a lame excuse to justify record highs, it matters little to the bulls. It is true that this past week, we actually witnessed a rare event—a two-day, 50-point drop in the S&P 500 Index—before stocks recovered. But good news on Friday morning (job gains in the economy came in at 236,000) cheered investors. It was largely a goldilocks report where wage gains (considered inflationary) were flat for the month, bringing the the average hourly earnings rate up to 3.2% year-over-year. Overall, the official U.S. unemployment rate is now 3.6%, which is the lowest level since 1969. It brings the total number of monthly job gains to 103 in a row, which has never happened before. Given that it is also the best start in the year for stocks since 1987, is there any wonder that exuberance is the prevailing mood on Wall Street (and in the White House)? Even the bears, whose numbers are expanding by the way, admit that if we did suffer a correction, it would be, at most, shallow and sharp. That’s the kind of correction you want, if and when it occurs. I have been reporting faithfully each week the bullish rise in investor sentiment and, although it remains flattish at 55.7% bulls, it is still quite high. Earnings season, which is 80% complete, turned out to be better than expected in the minds of most investors. And...

What you need to know (but don’t) about buying an IPO

An initial public offering of a stock, called an IPO, can be either a sucker’s game or a chance for instant riches. Determining the outcome requires a great deal of work, knowledge, and luck. Most investors have none of the above when it comes to IPOs. I want to share with you a recent conversation I had with a conservative client (a vegetarian and yoga teacher) on this subject. “I want to buy some stock of this company that makes a vegetarian form of hamburgers. How do I do it?” she asked. “Why do you want to buy it?” I asked, before explaining the mechanics of such a purchase. “Well, it tastes really good, all my friends love them, so I’m sure it’s going to be a great stock since more and more people will switch to this healthy choice of food.” What’s wrong with this picture? Number one, her analysis is full of holes. Her first mistake is failing to recognize three crucial differences. A good product does not necessarily translate to healthy corporate profits. Many a company with a good product has failed miserably because they did not have the knowledge, experience and financial acumen to make a go of it as a public company in a competitive marketplace. Number two, it does not necessarily follow that a company with good fundamentals will also perform well in the stock market. There are thousands of cases throughout financial history where companies that IPO never again reach their offering price. And three, if you think it is hard enough to analyze the fundamental valuation and technical position of an...

The economy powers ahead

The first print of the nation’s Gross Domestic Product for the first quarter of the year came in at 3.2%, versus 2.5% expected. That was a big beat and justifies the market’s gains over the last three months. If you couple this with the quarter’s earnings results, which have been stronger than expected, you have the ingredients for a goldilocks economy and strong stock market. “If the numbers were so good,” asked a client, “then why didn’t the markets react more positively to the news? Well, one reason may be that the data provided a past view of the economy and financial market usually look at (and discount) future expectations. But the numbers do have some value. For example, it should put to rest the worries that a recession is just around the corner. Remember all the anxiety the inverted yield curve created just a few short weeks ago? As I advised at the time, ignore it, because even if it did predict a recession, it would be 1-2 years into the future. Another issue is the historical levels that the markets have achieved this week. As I predicted, the S&P 500 Index hit and surpassed its all-time closing high. NASDAQ did as well. Usually, when milestones such as these are achieved, markets at least pause, if not pull back, before trying to achieve further gains. So, while GDP was a blow out number, the markets had already discounted it. What then, would markets need to see in order to forge through the old highs? A trade deal between the U.S. and China would help. That wish may come...

CBD is a real market

Cannabidiol is popping up all over the country. Local drug stores, supermarkets and health food shops, among other retailers, can’t seem to get enough of this stuff on the shelves. Is this a fad, a fake, or does it have some real health benefits? It’s called CBD, for short, and this oil can be eaten, inhaled, and/or applied to the skin. It is a substance extracted from the flowers and buds of the marijuana and hemp plant. And no, before you ask, you can’t get high from it. Back in the day, (when I had hair to my shoulders, along with my buckskin jacket) I simply smoked marijuana or ate it in cookies. It contained THC. THC, a chemical, attaches to the CB1 receptors in the brain and triggers all those familiar sensations like increased appetite, giddiness, moods swings, etc. Unlike THC, CBD was at first thought to attach to the CB2 receptors, which does not trigger psychoactive sensations. You don’t get a buzz from it, although for someone like me that is no longer important. The FDA allows CBD to be prescribed for epileptic seizure disorders and other ailments, but the research for other uses is till ongoing. Most consumers are using it for things like anti-inflammation and pain, especially for arthritis and injuries. Diabetes and acne are also conditions where CBD is used. Others believe it may have properties to treat Alzheimer’s disease. Whether any of these claims are true, will be borne out in time through research. Given my own arthritis issues, I decided not to wait to try it on my neck problems. It worked....