George Morgan's Blog, page 18

Role Of The Fed

Wall Street seems to have a favorable view of the appointment of Janet Yellen to head the Federal Reserve. Yellen has been at the Fed for a number of years and her policy views are fairly well known. She is a democrat and favors an aggressive monetary policy. In 1977, Congress passed a law which gave the Federal Reserve a dual mandate; maximize employment and stabilize prices. This is easier said than done. The primary tool of the Fed is to stimulate the economy is by increasing the money sup...

The New First Lady

For the first time in its hundred year history, the Federal Reserve will have the female as its leader. It was a shock to almost no one when President Obama announced that he was nominating Janet Yellen for the post of Chairperson of the Federal Reserve. Her confirmation is a sure thing. So what does this mean for your 401(k)? In the short rule run it as a slight plus and in the long run it probably means nothing. Like her predecessor Ben Bernanke, Yellen is an Ivy League academic economist....

Read The Fine Print

Bill Miller is one of those mutual fund managers that brings out “lottery fever” in some people.  For the fourth quarter in a row, Miller’s Legg Mason Opportunity Fund appeared as the best performing fund in the Wall Street Journal’s “Winner’s Circle.” The fund’s performance for the last twelve months came in at a whopping 63.25%. Eye popping performance like this will surely cause many to say “I got to have some of that.” The reason for Mr. Miller’s outstanding performance was that four...

Bogleheads

The “Investing In Funds And ETF’s” section of today’s Wall Street Journal is all about 401(k)’s. While I am pleased that the Wall Street Journal recognizes the importance of investment education for the millions of people who have 401(k)’s, I would also note that about the only thing of value to most people is an article about John Bogle and the Bogleheads fan club. Mr. Bogle is the founder of Vanguard fund group and the inventor of the index mutual fund.  Although 84 years of age, Bogle...

Buyer Beware

Almost every day, people ask me to review the options investment in their company’s 401(k) plan and every day I am appalled by the lack of acceptable options. Recently, I have been shown a number of actively managed mutual funds that attempt to pass themselves off as index funds.  Most of the offending funds are manufactured by insurance companies and usually have the number 500 in their title. At first blush you may think that you have found an index fund, I know I did. However, when yo...

Unengaged Employees; Ouch

Workers in over two dozen companies have filed lawsuits against their employers claiming that the company’s 401(k) plan was charging them excessive fees and provided them with unsuitable investments. Yesterday, International Paper settled a suit brought by current and former employees in which the firm agreed to pay the $30 million to a pool of participants in their 401(k). Recently, Cigna Corp paid $35 million to its employees who had claimed that their 401(k) offered “imprudent funds” as pa...

Kissing Cousins

Several recent conversations have led me to the conclusion that many people don’t understand the difference between a mutual fund and an index fund. In the truest sense for the word both mutual funds and index funds are mutual funds. The distinction comes in the way that the investment of the assets is conducted. The traditional mutual fund is actively managed. There is a fund manager or team of fund managers who buy and sell stocks with the objective of obtaining the best performance. This a...

Big Brother Is Watching

I recently spoke to a group of CEOs about the index investing approach as it applies to 401(k)s. They expressed a concern that many of their workers weren’t motivated enough to participate in the company’s plan. Jason Zweig’s weekly article brought to my attention an option that I was not aware of. A 401 K plan can be designed to have a mandatory enrollment provision. Under this format the employee is automatically enroll in the company’s 401(k) plan, but they cannot be forced to contribute t...

Do No Harm

For tens of millions of Americans their 401(k) account is the only way that they can accumulate wealth and be able to retire with dignity. The quality of the investment decisions that these individuals make will determine how much money they will be able to accumulate. But, unless they have good investment choices available to them, the best intended and the best educated of these individuals will fall short. Recently, I have been approached by numerous individuals and asked to review their 4...

Government Success Story

The 4.6 million Federal employees and members of the military do not have a 401(k) plan; they have a similar retirement plan known as the Thrift Savings Plan. The investment choices available to the participants are four index funds that are managed by the Blackrock Institutional Trust Company. For the past three years their large cap fund has exceeded the S&P 500, a feat which is almost unheard of. One of the reasons for their outstanding performance is that fee charged by the Blackrock...