Wednesday, December 23, 2009

Target Date Retirement Funds

Target date funds, also known as lifecycle funds, move money from riskier investments like stocks to more conservative alternatives like bonds as an investor approaches retirement.  Last year 7.3 million Americans held target date-funds, according to The Employee Benefit Research Institute's database of 24 million 401k participants.
Investors in some target-date lifestyle funds, supposedly targeted to be more conservative as one approaches retirement, are unaware that fund managers are chasing performance at exactly the wrong time.
The main reason that these funds are chasing riskier yield is because many charge a sales fee of up to 5%.  It is extremely difficult to make that 5% back without taking on more risk then should be necessary for someone entering into retirement.

American Funds 2010 Target Date Retirement Fund
Lost -27.5% in 2008, and the fund sports a 5.75% maximum sales charge.  Both the -27.5% portfolio loss and the sales charge is unheard of for someone entering into retirement.
These funds are doing one thing, making big commissions for the sales staff offering the plans. Target date funds may present greater risks then consumers have been aware of, says Morningstar's mutual-fund research group.  An investor receiving a semi-annual report from Fidelity's Freedom 2010 Fund, for example would need to read through to page 20 to find the allocation in it's high yield fixed-income funds.  The report does not break down the percentages of bonds rated below investment grade.


Friday, December 4, 2009

November Employment Report

The unemployment rate edged down to 10.0% in November from 10.2% in October. Non-Farm unemployment was essentially unchanged down just -11,000 the US Bureau of Labor Statistics reported today. In the prior three months payroll job losses have averaged -(135,000) a month.
In November employment fell in construction, manufacturing and information, while temporary help services and health care added jobs.
The table below gives us a better approximate of what the unemployment rate really feels like to the average Joe on the street. Last row U-6, lower right hand corner, 17.2%.
 

If you count all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off of the unemployment rolls, because their unemployment benefits ran out, you get a closer picture of what the unemployment rate really is. The number is in the last row labeled U-6, and that number is 17.2%.

Bottom Line: Although this report was a step in the right direction, we will have to see some follow through for the December and January unemployment situation reports. Also, would like to see more manufacturing related jobs instead of the lower paying service sector jobs that were added. Thank you for reading.