Fundamental Indexing Shines in Volatile Markets

If you’re a client of mine, or have ever engaged in a conversation with me about managing investments, then you know I’m a big fan of indexes and low-cost investing. I’m still a fan of the occasional manager who consistently outperforms his/her benchmark but I’m still skeptical that it’s worth the added expense over a long period of time. Today’s post is specifically about fundamental indexing. For those of you out of the loop about fundamental indexing, it’s a strategy which equal-weights the stocks in an index instead of weighting the index holdings based on market capitalization. When you weight based on market cap the way major indexes such as the S&P 500 do, your index inevitably invests the majority of its money in the top holdings. For example, the 20 largest companies in the S&P 500 comprise just over 32% of the index. The other 480 stocks comprise just under 68% of the index. While these market-cap indexes may be more accurately reflecting the economy, they may not be helping your portfolio…

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A Closer Look at the Roth Conversion

Roth IRAs are very trendy right now. “Trendy” isn’t a word I usually use to describe financial products and services but in this case I think it applies. Many investors are so concerned about upcoming tax rate hikes that they are more than willing to forego a tax deduction today if it means not having to worry about rising rates in the future. Starting in 2010, anyone can convert a traditional IRA to a Roth. SEP and SIMPLE IRAs can be converted as well. Before 2010, only individuals with adjusted gross incomes below 100K could do the Roth conversion. So, this opens the door for lots of wealthier Americans to make this switch. No surprise the government is looking for new sources of tax revenue now as they have plenty of fiscal problems to deal with. Below is a list of questions I’ve been fielding regarding IRAs and the Roth conversion.

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Bringing Real Reform to the 401(k) Industry: H.R. 2989

I’ve written at length about problems within the retirement plan system here in America. Perhaps the biggest drawback for employees is that those secure pensions of the 80’s and 90’s are, for the most part, being replaced by employee-funded 401(k) and 403(b) plans. While it may seem like only an operational switch, it’s actually a huge downgrade for most employees. Instead of having definite figures to rely on for future financial security, workers have to rely on themselves to save and the markets to make their savings grow. As we’ve seen over the past decade, the markets don’t always do us favors. Most investors, especially those nearing retirement, would have been better off putting that money into a bank account with little or no interest from 2000 to now. That would at least have eliminated the panic and emotional madness which most investors have been experiencing. Since we can’t predict what the markets will do in the future and trillions of dollars remain in retirement plan investments, the best we can do is hope for some real and genuine reform:

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