Thursday, November 24, 2011

Answer: Father of the 401(k)

Question: Who is Ted Benna?

Sorry for the answer/question format. I was watching the TV game show "Jeopardy!" before writing this post.

A good friend of mine sent me a link to an interview with Ted Benna. I had not heard of him, but apparently he was the first person to get a 401(k) retirement savings plan approved by the IRS some 30 years ago. In fact, the reason a 401(k) is called a "401(k)" is because that is the IRS tax code section that created these retirement accounts.

The interesting thing about the interview, is that Mr. Benna does not seem to like how the 401(k) has evolved over time.

Tuesday, November 22, 2011

The Warning

Have you ever heard of Brooksley Born?  Neither had I.

Neither did Alan Greenspan, Arthur Levitt, Larry Summers, or Robert Rubin, which is why they all testified to Congress to ignore Born's pleas to allow the Commodity Futures Trading Commission (CFTC) to regulate certain derivative financial instruments. Brooksley Born ran the CFTC when she attempted to regulate the multi-trillion dollar derivatives market - the same derivatives that helped trigger the 2008 financial meltdown.  Unfortunately, Alan Greenspan et. al. convinced Congress that the derivatives market would police itself just fine.

Clearly, they were wrong - and they admit as much on video.

The video on the subject made me think.  I'm a capitalist at heart, but

Monday, November 21, 2011

Finance Clippings: Luck or a brilliant value strategy?

I completely agree with this blog post from Professor Richard Warr (he's the head of the finance department at NC State). Finance Clippings: Luck or a brilliant value strategy?: Was Bill Miller's 15 year streak at the helm of the Legg Mason Value Trust luck or a skilled implementation of the value strategy (picking c...

Wednesday, November 16, 2011

What to do when your 401(k) suc(k)s

Here are a couple of good articles that point out there are times when you should NOT participate in your employers 401(k) plan.  SmartMoney article. Ask Holly article.

If your employer's 401(k) plan:

(1) offers no matching funds,


(2) charges a commission on your purchases (also called a front-end load, or sales charge),

you should opt NOT to participate in your 401(k).  Instead, fund an IRA or Roth IRA.

If your 401(k) plan charges a commission on purchases, but does offer matching funds, you should only contribute enough to obtain the maximum employer matching funds and no more.

Monday, November 14, 2011

Insider Trading Laws Don't Apply to Congress?!?

On Sunday the TV show "60 Minutes" did an excellent report about how "insider trading rules," that apply to EVERYONE, do NOT apply to members of congress.  Anyone who buys or sells investments while in possession of information not available to the public goes to jail - unless you are a member of congress.  And, no surprise, members of congress seem to have a very good stock and option trading record!  

Just think how much money you could make if you could do things like, buy stock in the initial public offering of VISA (the credit card company) knowing that highly restrictive credit card legislation was going to die in the House of Representatives? Nancy Pelosi, the Speaker of the House at the time, did just that!  

Or, what if you could buy a whole bunch of stock in health insurance companies the day before congress revealed legislation that would significantly help health insurance companies? John Boehner, the current Speaker of the House, did just that!  

How about buying a bunch of "put options" (betting the stock market would go down) after attending a confidential meeting where Federal Reserve Chairman Ben Bernanke first revealed the impending financial crisis?  Find out which member of congress did that by clicking the video link below.

Every voting American needs to watch the beginning of this CBS 60 Minute report.

Tuesday, November 8, 2011

Bond Market Irony and Karma: Why Evil Lehman Had it Coming

Rick Ferri recently blogged about how Total Bond Index Funds don't actually include the Total Bond Market. Ironic as it sounds, Rick is right.  Most so-called total bond market index funds try to mimic the Barclays Capital US Aggregate Bond Index (formerly the Lehman Aggregate Bond Index or in bond slang "The Lehman Agg"). Rick points out that the Barclay's Aggregate Bond Index EXCLUDES both junk bonds and TIPS.

TIPS (Treasury Inflation-Protected Securities) are an important asset class for investors since they are significantly different from traditional "fixed-income" bonds.  Thus, in my books, I utilize TIPS in many of my recommended investment recipes. TIPS are bonds issued by the US Treasury that adjust for inflation.  This is significantly different than all other bonds that pay a FIXED interest rate.

The biggest risk with investing in most US Treasury bonds is inflation risk.  If one looks at the current yield curve, you will see that 5-year US Treasury Notes currently pay less than 1% interest per year. If you own this bond, you will likely lose real value over 5 years as I expect inflation to exceed the paltry 1% yield.  TIPS also protect investors from DEFLATION as they are structured to never fall in value below their face value.  TIPS are so unique that when added to a traditional stock and bond portfolio, an investor can both reduce risk and increase returns of the overall portfolio.

Friday, November 4, 2011

Margin Call

Just saw the movie "Margin Call" with Kevin Spacey, Demi Moore, Jeremy Irons, and Stanley Tucci. The message is "If you can't be smarter, be first - otherwise cheat." I'll give the movie a 7 out of 10. You'll like it if you're a finance junkie like me. The movie is likely just a 6 for non-finance geeks.