tag:blogger.com,1999:blog-55450198943171448752024-02-07T20:10:04.321-05:00Investor CookbooksHopefully helpful information and opinions from a 20-year veteran of the financial industry.Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.comBlogger134125tag:blogger.com,1999:blog-5545019894317144875.post-66003722982937160672018-02-05T21:11:00.001-05:002018-02-05T21:11:42.398-05:00Tax Cuts & Jobs Act creates winners and losersThe Tax Cuts And Jobs Act has created winners and losers - sometimes on the same team. Take Sally Beauty Holdings (ticker: SBH). This is a company whose 35% federal tax rate should fall to 21% under the new law. This should boost SBH after-tax profits by roughly 22% or $48 million. Since stocks are priced based on profits, it stands to reason the SBH stock should rise and handsomely benefit executive management that are rewarded with stock and stock options.<br />
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However, much of SBH’s rural sales reps will be on the losing side of the new tax law. A typical SBH traveling sales rep might earn $60,000 per year, but could incur $20,000 in unreimbursed business travel expenses. Thus, this rep really only earns $40,000 per year. </div>
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Under the old tax code, the typical rural SBH sales rep could deduct the $20,000 of unreimbursed business travel expenses (stuff like 25,000 miles on their personal car and hotel and meals away from home) as a Miscellaneous Itemized Deduction on Schedule A via Form 2106 for Unreimbursed Employee Business Expenses. So, the SBH rep that really only netted $40,000 from their job, only paid taxes on the $40,000.</div>
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However, the new tax law completely eliminated all Miscellaneous Itemized Deductions on Schedule A. Now the SBH rep has to pay income taxes like they earned $60,000 even though they spent $20,000 to earn that paycheck. This will result in roughly $4,000-$5,000 in higher taxes for the SBH traveling sales rep. <br />
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So, under the old tax law, the SBH sales rep that makes $60,000 in W-2 wages had a real net pay of $40,000, less $4,000 federal tax, less $4,500 in payroll taxes might have had $31,500 in spendable income. Under the new tax law, that spendable income may fall 13-16% to around $28,000. </div>
Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-54106389939289401752018-01-30T02:50:00.001-05:002018-02-05T21:19:25.303-05:00Historical Investment Returns 2017<iframe height="680" src="https://drive.google.com/file/d/12a3PCqS33KelCGY-6sfontGyzbvGLwrG/preview" width="980"></iframe>
Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-8509282574729350922017-11-26T01:25:00.001-05:002018-01-30T03:15:51.366-05:00NCRS Pension and Treasurer FolwellBottom line: NC Treasurer Dale Folwell is headed in the right direction. But, progress is never a straight line. <br />
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Treasurer Folwell impressed me by freezing new commitments to alternative investments. He further impressed me by quickly firing a dozen active equity managers. But, I was disappointed that the $7 Billion of equities was liquidated instead of being transferred to index managers. This lowered the equity exposure of the pension portfolio from 44% to 37% at a time that equities rose 10-15%. </div>
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However, to be fair, the self-described longterm target allocation to equities is 42% for the NC pension. Thus, liquidating some of the fired manager portfolios made sense as the fund was essentially 2% over-weight equities. And, the current allocation of 38% is well within the self-imposed guidelines of the fund of 37-47% equities. </div>
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Treasurer Folwell will likely face criticism from the investment industry for his strategy of moving away from trendy, expensive alternative investments and toward low-cost inhouse indexing. (A strategy I fully support!) Thus, the treasurer can’t really afford the distraction of further criticism for straying from longterm asset allocation targets. </div>
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Hopefully Treasurer Folwell will ignore the barking from Monday-morning quarterbacks, continue to resist pressure to make new investments, and resume his intense focus on cutting manager fees by moving toward low-cost, inhouse passive managent of plain vanilla stocks and bonds. </div>
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<a href="http://wr.al/19u2A">http://wr.al/19u2A</a></div>
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Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-82956508544660622602017-04-02T08:00:00.000-04:002017-04-02T08:00:14.151-04:00Picking Stocks is Hard, Picking Mutual Funds is Harder<span style="font-family: Arial, Helvetica, sans-serif;">Princeton Economist Burton Malkiel, author of "<u><a href="https://www.amazon.com/Random-Walk-down-Wall-Street/dp/0393352242/ref=sr_1_1?ie=UTF8&qid=1491112993&sr=8-1&keywords=A+Random+Walk+Down+Wall+Street" target="_blank">A Random Walk Down Wall Street</a></u>" famously pointed out, </span><br>
<blockquote class="tr_bq">
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">“If picking stocks is a random walk down Wall Street, picking mutual funds is an obstacle course through Hell’s Kitchen."</span></span></blockquote>
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<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">The editors of <a href="http://www.kiplinger.com/" target="_blank">Kiplinger's personal finance magazine</a> have validated that statement. Kiplinger's regularly publish "<a href="http://www.kiplinger.com/fronts/special-report/kip-25/" target="_blank">The Kiplinger 25</a>" - a list of Kiplinger's favorite mutual funds. I dug up a 10-year-old Kiplinger's magazine from January 2007 and analyzed the 10-year-old Kiplinger 25 with the help of <a href="http://www.morningstar.com/" target="_blank">Morningstar</a>. Here's what I discovered:</span></div>
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<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Only one mutual fund from the January 2007 Kiplinger 25 still makes the Kiplinger 25 just 10 years later. I won't even tempt you with the name of that one surviving fund since it has under-performed it's style benchmark index by more than 1% per year the past 10 years. </span></li>
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<li><span style="font-family: Arial, Helvetica, sans-serif;">17 of the Kiplinger 25 funds have failed to beat their style benchmark index the past 10 years. </span></li>
</ul>
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<li><span style="font-family: Arial, Helvetica, sans-serif;">The average Kiplinger 25 mutual fund under-performed its style benchmark index by an average of 1.25% per year the past 10 years. </span></li>
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<li><span style="font-family: Arial, Helvetica, sans-serif;">The average US stock fund in the Kiplinger 25 under-performed its style benchmark by an average of 2.10% per year the past 10 years. </span></li></ul></div><a href="https://investorcookbooks.blogspot.com/2017/04/picking-stocks-is-hard-picking-mutual.html#more">Read more »</a>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-37307969139755961222016-10-20T13:54:00.000-04:002016-10-20T13:54:03.703-04:00Nevada Does Not Gamble With Their Public PensionThe <a href="http://www.wsj.com/articles/what-does-nevadas-35-billion-fund-manager-do-all-day-nothing-1476887420" target="_blank">Wall Street Journal recently ran an article about the Nevada Public Employee Retirement System</a> pension investments. The entire pension investments are managed by one single person who invests 100% in passive index funds. The entire investment process costs a paltry $18 million per year. Compare that to <a href="https://www.nctreasurer.com/inv/Investment%20Reports/2ndQtr2016GovOps.pdf" target="_blank">North Carolina's annual costs of $595 million per year</a> (see page 10). <br />
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Now compare the investment results ending June 30, 2016:<br />
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<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 216px;">
<colgroup><col span="3" style="width: 54pt;" width="72"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td height="20" style="height: 15.0pt; width: 54pt;" width="72"></td>
<td class="xl63" style="width: 54pt;" width="72"> NV</td>
<td class="xl63" style="width: 54pt;" width="72"> NC</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td height="20" style="height: 15.0pt;">1-year</td>
<td align="right" class="xl64">2.3%</td>
<td align="right" class="xl64">0.8%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td height="20" style="height: 15.0pt;">3-year</td>
<td align="right" class="xl64">7.8%</td>
<td align="right" class="xl64">6.1%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td height="20" style="height: 15.0pt;">5-year</td>
<td align="right" class="xl64">7.7%</td>
<td align="right" class="xl64">6.0%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td height="20" style="height: 15.0pt;">10-year</td>
<td align="right" class="xl64">6.2%</td>
<td align="right" class="xl64">5.5%</td>
</tr>
</tbody></table>
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Click here to view the actual investment return reports for <a href="https://www.nvpers.org/public/investments/pers/PERS-Investment-Performance.pdf" target="_blank">Nevada</a> and <a href="https://www.nctreasurer.com/inv/Investment%20Reports/NCRS_Quarterly_Update_Q2_2016.pdf" target="_blank">North Carolina</a>.</div>
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Now consider this, the difference between 7.7% and 6.0% returns amounts to $10 Billion in lower returns over just the past 5 years for North Carolina's $90 Billion pension fund. That $10 Billion shortfall will need to be made up by North Carolina tax payers and lower payouts to retirees. The result is, taxes will need to be higher and less money will be available for services such as education and healthcare. Considering North Carolina's entire state budget is just $22 Billion each year, the $10 Billion in lower pension returns is a silent fiscal catastrophe the burden of which will be felt for generations.</div>
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It is brutally clear, that the North Carolina pension should aim to emulate Nevada. North Carolina needs to quit investing in expensive investment strategies that do not work. North Carolina needs to follow Nevada's example and invest 100% in passive indexed strategies and quit squandering money on private equity, real estate, hedge funds, commodity funds, and other expensive actively managed investments. </div>
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Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-7415152210391315042016-09-07T07:00:00.000-04:002016-09-07T07:00:27.724-04:0042 Years of NC Pension Investment ReturnsThere has been a lot of hand wringing over the North Carolina Retirement System Pension Fund investment returns - as well there should be. As I've documented previously on this blog, the returns could have been substantially higher had Richard Moore and Janet Cowell not squandered billions on a failed foray into alternative investments. <br />
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In <a href="https://www.nctreasurer.com/inv/Investment%20Reports/NCRS_Quarterly_Update_Q2_2016.pdf" target="_blank">Treasurer Cowell's most recent investment performance report, the pension earned an annualized return of just 5.8% per year over the last 15 years ending 6/30/2016</a>. This return is far below the actuarial assumed rate of return of 7.25%. These figures have led some to question if the 7.25% return is attainable long term and should it be lowered? I honestly do not know the answer to that question, but for what it is worth, I made a trip to the State Library and collected 42 years of NC pension investment returns from old, dusty annual reports from the Department of State Treasurer. <br />
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I calculated a geometrically-linked annualized return for the 40 years that came to 7.9% for the NC pension fund. As a point of reference the S&P 500 Index return was 11.0% while the Barclays/Lehman Aggregate Bond Index return was 7.7% for the same 40 year period ending 6/30/2016.<br />
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While interesting, I'm not sure how helpful these return data are. In the 70's and into the 80's more than 85% of the pension was invested in investment grade bonds with less than 15% allocated to stocks. By 2000, the fund was invested 60% in stocks and 40% in bonds. Today, 28% of the fund is invested in neither stocks or bonds, but in other "alternative" investments. Thus, history is not particularly helpful for predicting future returns. <br />
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Something else I discovered in the old annual reports, as recently as the early 80's the actuarial assumed rate of return was just 6%. At some point it was raised and we now assume 7.25%. Of course the problem with any assumption is that inflation was double digits in the 70's and near zero more recently. Thus, picking an "absolute" assumed rate of return for a pension fund with an infinite time horizon is a fools game from the start. Almost every economic study begins by adjusting figures for inflation. It might be helpful for actuaries to try to incorporate some sort of assumed return over and above inflation, instead of changing the absolute return assumption every 20 years?<br />
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For what it is worth, here are the 42 years of return data I found:<br />
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<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 201px;">
<colgroup><col style="mso-width-alt: 2976; mso-width-source: userset; width: 70pt;" width="93"></col>
<col style="mso-width-alt: 3456; mso-width-source: userset; width: 81pt;" width="108"></col>
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<tr height="20" style="height: 15.0pt;">
<td class="xl69" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan; width: 151pt;" width="201">NCRS Pension Returns</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl69" colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">as
of 6/30/2016</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;"></td>
<td class="xl67"></td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">Time</td>
<td class="xl67">Annualized</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl65" height="20" style="height: 15.0pt;">Period</td>
<td class="xl65">Return</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">1-Year</td>
<td class="xl68">0.8%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">5-Year</td>
<td class="xl68">6.0%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">10-Year</td>
<td class="xl68">5.5%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">15-Year</td>
<td class="xl68">5.8%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">20-Year</td>
<td class="xl68">6.6%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">25-Year</td>
<td class="xl68">7.0%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">30-Year</td>
<td class="xl68">7.5%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">35-Year</td>
<td class="xl68">7.9%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">40-Year</td>
<td class="xl68">7.9%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl67" height="20" style="height: 15.0pt;">42-Year</td>
<td class="xl68">7.8%</td>
</tr>
</tbody></table>
<br /><br /><table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 203px;">
<colgroup><col style="mso-width-alt: 3040; mso-width-source: userset; width: 71pt;" width="95"></col>
<col style="mso-width-alt: 3456; mso-width-source: userset; width: 81pt;" width="108"></col>
</colgroup><tbody>
<tr height="20" style="height: 15.0pt;">
<td colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan; width: 152pt;" width="203">NC Pension Returns</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td colspan="2" height="20" style="height: 15.0pt; mso-ignore: colspan;">years ending
6/30</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td height="20" style="height: 15.0pt;"></td>
<td></td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl70" height="20" style="height: 15.0pt;">Year</td>
<td class="xl70"> Return</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2016</td>
<td align="right" class="xl69">0.80%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2015</td>
<td align="right" class="xl67">2.25%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2014</td>
<td align="right" class="xl67">15.88%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2013</td>
<td align="right" class="xl67">9.52%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2012</td>
<td align="right" class="xl67">2.21%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2011</td>
<td align="right" class="xl67">18.48%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2010</td>
<td align="right" class="xl67">11.97%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2009</td>
<td align="right" class="xl67">-14.22%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2008</td>
<td align="right" class="xl67">-2.07%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2007</td>
<td align="right" class="xl67">14.82%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2006</td>
<td align="right" class="xl67">7.23%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2005</td>
<td align="right" class="xl67">9.85%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2004</td>
<td align="right" class="xl67">12.01%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2003</td>
<td align="right" class="xl67">7.56%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl71" height="20" style="height: 15.0pt;">2002</td>
<td class="xl68"> -4.04%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">2001</td>
<td align="right" class="xl66">-2.0%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">2000</td>
<td align="right" class="xl66">9.0%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1999</td>
<td align="right" class="xl66">10.7%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1998</td>
<td align="right" class="xl66">19.4%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1997</td>
<td align="right" class="xl66">8.9%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1996</td>
<td align="right" class="xl66">9.5%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1995</td>
<td align="right" class="xl66">8.3%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1994</td>
<td align="right" class="xl66">8.5%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1993</td>
<td align="right" class="xl66">9.0%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1992</td>
<td align="right" class="xl66">8.8%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1991</td>
<td align="right" class="xl66">8.8%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1990</td>
<td align="right" class="xl66">9.1%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1989</td>
<td align="right" class="xl66">9.3%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1988</td>
<td align="right" class="xl66">11.5%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1987</td>
<td align="right" class="xl66">10.6%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1986</td>
<td align="right" class="xl66">11.2%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1985</td>
<td align="right" class="xl66">10.4%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1984</td>
<td align="right" class="xl66">9.9%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1983</td>
<td align="right" class="xl66">10.6%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1982</td>
<td align="right" class="xl66">9.7%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1981</td>
<td align="right" class="xl66">8.8%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1980</td>
<td align="right" class="xl66">8.1%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1979</td>
<td align="right" class="xl66">7.6%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1978</td>
<td align="right" class="xl66">7.1%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1977</td>
<td align="right" class="xl66">6.9%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1976</td>
<td align="right" class="xl66">6.8%</td>
</tr>
<tr height="20" style="height: 15.0pt;">
<td class="xl72" height="20" style="height: 15.0pt;">1975</td>
<td align="right" class="xl66">6.6%</td>
</tr>
</tbody></table>
Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-71919684686831527962016-08-24T07:00:00.000-04:002016-08-24T07:00:31.058-04:00North Carolina Pension Fund Sure Misses Harlan BoylesLast week North Carolina State Treasurer Janet Cowell posted the <a href="https://www.nctreasurer.com/inv/Investment%20Reports/2ndQtr2016GovOps.pdf" target="_blank">Government Investment Operations Report for the North Carolina Retirement System Pension Fund for the fiscal year ending June 30, 2016</a>. The report says the treasurer spent $595 Million managing the $87 Billion pension fund investment portfolio. That's up from just $57 Million when the pension was $59 Billion when Harlan Boyles retired in 2000. <br />
<br />
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b><span style="font-size: 14pt;">NC Retirement System
Pension Fund<o:p></o:p></span></b></div>
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<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
<b>2000<o:p></o:p></b></div>
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<b>2008<o:p></o:p></b></div>
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<b>2016<o:p></o:p></b></div>
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</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
Harlan<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
Richard<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
Janet<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
Boyles<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
Moore<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
Cowell<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 7;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b>Expense Ratio<o:p></o:p></b></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
0.1%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
0.3%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
0.7%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b>Funding Ratio<o:p></o:p></b></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
113%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
105%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
96%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 10;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 11;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b>S&P 500 Return*<o:p></o:p></b></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
21%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
2%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
15%<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 12;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 13;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
<b>Sources: <o:p></o:p></b></div>
</td>
<td colspan="4" nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 191.1pt;" valign="bottom" width="255">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<a href="http://digital.ncdcr.gov/cdm/ref/collection/p249901coll22/id/27890" target="_blank">State Treasurer's Annual Reports</a><o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 14;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td colspan="5" nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 245.1pt;" valign="bottom" width="327">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<a href="https://www.nctreasurer.com/inv/Pages/Government-Operations-Reports.aspx" target="_blank">Government Investment Operation Reports</a><o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 15;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td colspan="4" nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 191.1pt;" valign="bottom" width="255">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<a href="https://www.nctreasurer.com/inv/Investment%20Reports/NCRS_Quarterly_Update_Q2_2016.pdf" target="_blank">Investment Performance Reports</a><o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 16;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td colspan="5" nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 245.1pt;" valign="bottom" width="327">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<a href="https://www.nctreasurer.com/ret/Retirement%20Reports/TSERSActuarialValuation_December31_2014.pdf" target="_blank">Retirement Systems Valuation Report (10/15)</a><o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 17;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 2.7pt;" valign="bottom" width="4"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 63.55pt;" valign="bottom" width="85"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 72.55pt;" valign="bottom" width="97"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 52.3pt;" valign="bottom" width="70"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 18; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"></td>
<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 131.55pt;" valign="bottom" width="175">
<div align="right" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: right;">
<b>*<o:p></o:p></b></div>
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7-year Annualized Return<o:p></o:p></div>
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While the pension fund assets have increased 47% since Harlan Boyles retired, the expenses incurred managing the investments have increased an astonishing 1,044% while the funding ratio has fallen 17 points. This irresponsible explosion of investment expenses is a boon for Wall Street, but a silent fiscal catastrophe for North Carolina, the burden of which will be borne by the pensioners and taxpayers for years to come. </div>
Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-27552211192525040172016-08-09T07:00:00.000-04:002016-08-09T07:00:32.130-04:00Index Fund Returns Crush North Carolina Pension Returns (Again)North Carolina Treasurer Janet Cowell recently released investment returns for the state pension fund. The <a href="https://www.nctreasurer.com/inside-the-department/News-Room/press-releases/Pages/Treasurer-Cowell-Reports-Second-Quarter-and-Fiscal-Year-Pension-Fund-Returns-2016.aspx" target="_blank">press release</a> touted the returns as being slightly better than average over the past 5 years (45th percentile). However, it is important to keep in mind that the NC pension fund fails to beat a simple mix of low-cost Vanguard index funds.<br />
<br />
The table below shows the annualized returns of the NC pension fund compared to a simple portfolio of 5 Vanguard index mutual funds. <br />
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<span style="font-size: 14pt;">Annualized Investment Returns<o:p></o:p></span></div>
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as of 6/30/2016<o:p></o:p></div>
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<td nowrap="" style="height: 15.0pt; padding: 0in 5.4pt 0in 5.4pt; width: 59.35pt;" valign="bottom" width="79"></td>
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North<o:p></o:p></div>
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Vanguard<o:p></o:p></div>
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Carolina<o:p></o:p></div>
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Index<o:p></o:p></div>
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Lost<o:p></o:p></div>
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<u>Pension<o:p></o:p></u></div>
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<u>Funds*<o:p></o:p></u></div>
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<u>Returns<o:p></o:p></u></div>
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1-Year<o:p></o:p></div>
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0.8%<o:p></o:p></div>
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5.4%<o:p></o:p></div>
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4.6%<o:p></o:p></div>
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3-Year<o:p></o:p></div>
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6.1%<o:p></o:p></div>
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8.0%<o:p></o:p></div>
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1.9%<o:p></o:p></div>
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5-Year<o:p></o:p></div>
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6.0%<o:p></o:p></div>
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9.1%<o:p></o:p></div>
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3.1%<o:p></o:p></div>
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7-Year<o:p></o:p></div>
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8.5%<o:p></o:p></div>
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11.2%<o:p></o:p></div>
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2.7%<o:p></o:p></div>
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10-Year<o:p></o:p></div>
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5.5%<o:p></o:p></div>
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7.3%<o:p></o:p></div>
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1.8%<o:p></o:p></div>
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*The Vanguard portfolio uses the same asset allocation the pension fund had when Harlan Boyles left office in 2000, before alternative investments were introduced to the portfolio. The analysis rebalanced the allocation of the Vanguard portfolio once per year.<br />
<br />
Treasurer Cowell pointed out that the pension earned 8.5% annualized over the last 7 years - which approximates her tenure as North Carolina's Treasurer. The simple Vanguard portfolio would have earned 11.2% over the same time period. This difference of 2.7% per year for 7 years translates into $20 billion of lost returns during Treasurer Cowell's tenure.<br />
<br />
For a state whose annual budget is $22 billion, the expansion of alternative investments in the pension fund from nearly zero to over 25% has been a silent fiscal catastrophe. Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com1tag:blogger.com,1999:blog-5545019894317144875.post-32307244458026799342015-02-04T07:00:00.000-05:002015-02-04T07:00:02.603-05:00Payroll Adjustment Calculator and Take Home Pay Estimator<span style="font-family: Arial, Helvetica, sans-serif;">It's tax season and many folks will realize they are getting a huge refund. While this might be considered good news, it also means you've given the government an interest free loan all year. Alternatively, perhaps you discover you underpaid your taxes during the year and find you even owe a penalty for underpaying during the year. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.calcxml.com/do/pay02" target="_blank">Click here for a handy <b>payroll adjustment calculator</b></a><b>.</b> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Grab your latest pay stub and use this tool to help figure out what changes you need to make to your tax withholding. If your pay stub does not include information about the allowances you are claiming, you may need to go to your company's payroll department and ask to see what your W-4 currently looks like. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">After using the above tool, fill out a new <a href="http://www.irs.gov/uac/Form-W-4,-Employee%27s-Withholding-Allowance-Certificate-1" target="_blank"><b>W-4</b> by clicking here</a>. Or, go back to your company's payroll department and ask to fill out a new W-4 to change your future tax withholdings. </span>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-79532791197672378342015-01-25T23:26:00.000-05:002015-01-25T23:26:10.163-05:00The Key to Lower Healthcare Costs<span style="font-family: Arial, Helvetica, sans-serif;">The key to lower healthcare costs is high-deductible health insurance plans combined with <b>websites like this one--> (<a href="http://www.bcbsnc.com/content/providersearch/treatments/index.htm#/?distance=10&location=211%20Crickentree%20Drive,%20Cary,%20NC%2027518,%20USA&treatment=Chiropractic%20Treatment&categorycode=19001" target="_blank">click here</a>)</b>. The cost-sharing aspects of high-deductible health insurance plans like those attached to healthcare savings accounts (HSA) encourage patients to shop around for the best care at the best price for non-emergency care. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">The website above shines a light on certain hospitals and doctors that charge more than twice what similar hospitals and doctors charge for similar care. I'd like to see the website above add patient reviews. Reviews combined with clear pricing would do for healthcare costs what Amazon has done for almost everything else.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">It's incredible to think, most of us put much more research effort into buying a new car, TV, vacation spot, or even a small power tool than we do choosing a doctor or hospital for hip replacement or hernia repair. </span>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com1tag:blogger.com,1999:blog-5545019894317144875.post-81575195124424003342015-01-04T07:30:00.000-05:002015-01-04T07:30:01.933-05:00Historical Asset Class Returns 2014<span style="font-family: Arial, Helvetica, sans-serif;">Here's the latest historical asset class returns chart ending 2014. Overall, a terrific year for investors with all but one asset class rising (I don't consider commodities an investment asset class).</span><br>
<span style="font-family: Arial, Helvetica, sans-serif;"><br></span>
<span style="font-family: Arial, Helvetica, sans-serif;">It is funny how the financial markets can make smart people do really stupid things. The top performing asset class in 2014 was long-term bonds which rose nearly 20% in 2014. In fact, US Treasury bonds with maturities longer than 20 years rose nearly 30% in 2014! </span><br>
<span style="font-family: Arial, Helvetica, sans-serif;"><br></span>
<span style="font-family: Arial, Helvetica, sans-serif;">This must come as a nasty a surprise, <a href="http://investorcookbooks.blogspot.com/2013/07/bonds-are-only-safe-haven-in-times-of.html#more" target="_blank">to the North Carolina State Treasurer</a> who sold billions of dollars of bonds just before they sky-rocketed in value. This was just the latest example of North Carolina Treasurer Janet Cowell zigging while the markets zagged. Five years ago Ms. Cowell sold stocks in favor of "inflation-sensitive" assets (aka: commodities). Her inflation portfolio has lost value over the past five years while the stock market rose each and every year and is now at all-time record highs. 2014 was another dismal year for speculators in commodities. Oops! Sorry, North Carolina pensioners, likely no COLA (cost of living adjustment) for you.</span><br>
<span style="font-family: Arial, Helvetica, sans-serif;"><br></span>
<span style="font-family: Arial, Helvetica, sans-serif;">If you rebalanced your portfolio last year (and you should always rebalance once or twice each year) you would have PURCHASED long-term bonds after they fell in 2013. If you did, congrats, you are a better investor than North Carolina's State Treasurer.</span><br>
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRFQBlJiZGJTF05Ad_OvjBfx2_k0lzhCSO6mMvHxZE3P9CdtAVaZR58k3fTXTi65joaaJbv7uochYa3VpBIVANPq95mLwnhBiYnUMlY0WkRQz88UsjCX_1BfMSjEnA0Ao3plOKXNvEgUvJ/s1600/2014+Historical+Returns+Chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRFQBlJiZGJTF05Ad_OvjBfx2_k0lzhCSO6mMvHxZE3P9CdtAVaZR58k3fTXTi65joaaJbv7uochYa3VpBIVANPq95mLwnhBiYnUMlY0WkRQz88UsjCX_1BfMSjEnA0Ao3plOKXNvEgUvJ/s1600/2014+Historical+Returns+Chart.png"></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #222222; font-size: 15px; line-height: 21px;">The chart above shows the last 15 years of investment returns by asset class. On the far right I have calculated the 25-year average for each asset class and pointed out the best and worst annual returns for the past 25 years for each asset class. I love this chart - which is why I put it on the back cover of </span><a href="http://www.amazon.com/R.-Ron-Elmer/e/B004GIKMK0/ref=sr_ntt_srch_lnk_1?qid=1325367742&sr=1-1" style="background-color: white; color: #888888; font-size: 15px; line-height: 21px;" target="_blank"><b>every book I have written</b></a><span style="background-color: white; color: #222222; font-size: 15px; line-height: 21px;">. Almost everything you need to know about investing can be learned from this chart:</span></span><br>
<ol style="background-color: white; font-size: 15px; line-height: 21px;">
<li style="color: #222222; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><u>Stocks beat bonds over the long-run</u>. In the far right columns of the chart you will notice that all 4 of the major stock classes have a higher 20-year average return than all 4 of the major bond classes. You will notice that the various stock classes averaged 8-14% annual returns over 25 years while the various bond classes averaged just 5-8%. </span></li>
<li style="color: #222222; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><u>Stocks don't beat bonds EVERY year, but they win about 75-80% of the time</u>. You will also notice that a stock class claimed the top spot in 10 out of the past 15 years (and 19 out of the past 25 years).</span></li></ol><a href="https://investorcookbooks.blogspot.com/2015/01/historical-asset-class-returns-2014.html#more">Read more »</a>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-63884445985170077402014-10-31T16:55:00.002-04:002014-10-31T16:55:58.826-04:00How to Win at Investing<span style="font-family: Arial, Helvetica, sans-serif;">Below are links to short clips of a fantastic documentary called "<b>How to Win the Losers Game</b>." The documentary, produced by Sensible Investing, basically tells you the nasty truths about investing, but also tells you the very best way to go about investing. Much of the documentary is focused on the United Kingdom, but most of the data and statistics hold true here in the United States as well the rest of the world. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Regardless of where you live and invest, regardless of your age, EVERYONE should watch these video clips.<b> </b></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><b>In a nutshell, the lowest cost investment strategy will always beat a more expensive strategy. So, you should index everything and ignore the so-called "experts" that chatter endlessly about the ups and downs of the markets, and always stay the course. </b></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-1" target="_blank">Part 1</a> (6:02)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-2" target="_blank">Part 2</a> (7:38)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-3" target="_blank">Part 3</a> (10:41)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-4" target="_blank">Part 4</a> (12:08)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-5" target="_blank">Part 5</a> (8:37)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-6" target="_blank">Part 6</a> (13:16)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-7" target="_blank">Part 7</a> (8:14)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-8" target="_blank">Part 8</a> (9:49)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-9" target="_blank">Part 9</a> (8:55)</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-10" target="_blank">Part 10</a> (10.01)</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">If you are on Twitter, <a href="https://twitter.com/InvestSensibly" target="_blank">@InvestSensibly</a> is well worth following. (I'm on Twitter too @relmbo). </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com1tag:blogger.com,1999:blog-5545019894317144875.post-36648109832410178442014-10-20T07:00:00.000-04:002014-10-20T07:00:04.966-04:00The Self-Employed Should Open a Solo 401(k)<span style="font-family: Arial, Helvetica, sans-serif;">I ran some calculations on a <a href="http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx" target="_blank">self-employed retirement calculator</a>, and as the chart below clearly shows,<b> the Solo 401(k) is a superior retirement plan for the self-employed regardless of income level</b>. The Solo 401(k) allows self-employed individuals to put more money into a tax-advantaged account while reducing taxable income better than any other retirement vehicle. </span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8jIYlorAMjf7QwsnRMQNubi_8r3aQSbVLVs-ZjRQI_bi7c5FwZBSjrTMOrNpmIIM9HCAGufhiBP6EOvwO5MjlKse_Ziult3hUhBpL18kpKYDculT33EBUIHnMZHKL9FgccrZFc-UW2Yx_/s1600/Solo+401(k)%2BChart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8jIYlorAMjf7QwsnRMQNubi_8r3aQSbVLVs-ZjRQI_bi7c5FwZBSjrTMOrNpmIIM9HCAGufhiBP6EOvwO5MjlKse_Ziult3hUhBpL18kpKYDculT33EBUIHnMZHKL9FgccrZFc-UW2Yx_/s1600/Solo+401(k)%2BChart.png" /></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>The one advantage the SEP IRA has, is that it can be opened AFTER the tax year has ended.</b> A SEP IRA can be created as late as April 15th (or as late as October 15th if you extend your tax return) for the previous tax year. Thus, while the Solo 401(k) is the best way to go, you must open the 401(k) account before the end of your tax year (December 31st). </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Being self-employed means you are both the employee and employer when it comes to retirement plans. You must create the solo 401(k) account before December 31st and make the <i>employee</i> contribution also before December 31st. However, the <i>employer</i> contribution can be made as late as April 15th the following year (or October 15th if you extend your tax return).</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Self-employed individuals can contribute up to 100% of their compensation to a maximum of $17,500 (plus an additional $5,500 if aged 50+) for their <i>employee</i> portion and up to 25% of net income for the <i>employer</i> contribution up to $34,500 for a grand total combined maximum contribution of $52,000 for 2014 ($57,500 if aged 50+). </span>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-44723614298802056782014-08-27T16:31:00.001-04:002014-08-27T16:31:47.298-04:00Finance Clippings: Fantastic investigative report into alternatives i...<a href="http://financeclippings.blogspot.com/2014/08/fantastic-investigative-report-into.html?spref=bl">Finance Clippings: Fantastic investigative report into alternatives i...</a>: Investigative reporting at its best, done by Tom Bullock of WFAE 90.7 - public radio in Charlotte. It's in two parts. Well worth listening to.Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-59285563786641136452014-06-04T07:30:00.000-04:002014-06-04T07:30:00.597-04:00Bravo NC Treasurer Cowell! (Yeah, I said it.)<span style="font-family: Arial, Helvetica, sans-serif;"> I was hopeful when the State Employees Association of North Carolina (<a href="http://www.seanc.org/" target="_blank">SEANC</a>) turned up the heat on <a href="https://www.nctreasurer.com/" target="_blank">North Carolina State Treasurer</a> Janet Cowell to make changes to the North Carolina Retirement System (NCRS) pension investment operations and reporting by hiring professional pension investigator <a href="http://www.forbes.com/sites/edwardsiedle/" target="_blank">Ted Siedle</a> and his firm <a href="http://benchmarkalert.com/forensic_investigations-0.html" target="_blank">Benchmark Alert</a>. I was hopeful when Treasurer Cowell announced the formation of the <a href="https://www.nctreasurer.com/inv/Pages/Investment-Fiduciary-Governance-Commission.aspx" target="_blank">Investment Fiduciary Governance Commission</a> to evaluate the State Treasurer's management of the NCRS. I was hopeful when Treasurer Cowell's Governance Commission issued <a href="https://www.nctreasurer.com/inv/Investment%20Fiduciary%20Governance%20Commmittee%20Documen/Final_IFGC_Report_4-30-2014.pdf" target="_blank">recommended changes</a> that addressed many of <a href="http://seanc.org/legislative-action/retirement/retirement-investigation/" target="_blank">Mr. Siedle's concerns</a> and echoed many of <a href="http://investorcookbooks.blogspot.com/2014/01/a-suggestion-for-new-ncrs-investment.html" target="_blank">my suggestions</a>. Hopeful, but skeptical. </span><br>
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<a href="https://investorcookbooks.blogspot.com/2014/06/bravo-nc-treasurer-cowell-yeah-i-said-it.html#more">Read more »</a>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-19144062245361908632014-05-23T07:30:00.000-04:002014-05-23T07:30:03.066-04:00Jon Stewart holds his own with Tim GeithnerIf you are a student of the 2008 financial crisis, <a href="http://thedailyshow.cc.com/extended-interviews/z9b8f1/timothy-geithner-extended-interview" target="_blank">this extended <strike>interview</strike> debate between Jon Stewart and Tim Geithner is worth a watch</a>. Stewart surprised me - he really knows quite a lot about the crisis.Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-12992146127830473072014-05-15T15:50:00.001-04:002014-05-15T15:50:10.198-04:00SEC: 50% of Private Equity Firms Steal from their ClientsAndrew Bowden, the Director of Compliance Inspections and Examinations recently gave a speech entitled, "<a href="http://www.sec.gov/News/Speech/Detail/Speech/1370541735361#.U3UI7vldWmE" target="_blank">Spreading Sunshine on Private Equity</a>." If you click on the link and read the transcript from Bowden's speech, <b>you would have to wonder why anyone would ever give their money to a private equity fund ever again.</b> Bowden's speech should be required reading for all pension fund managers. What follows is a quote from Bowden's speech:<div>
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<blockquote class="tr_bq">
<span style="background-color: white; font-family: Verdana, Geneva, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px;">"When we have examined how fees and expenses are handled by advisers to private equity funds, we have identified what we believe are violations of law or material weaknesses in controls over 50% of the time. This is a remarkable statistic."</span></blockquote>
The SEC has found in their audits of private equity firms that more than 50% of them:<br />
<br />
<ol>
<li> over charge their clients for fees, and </li>
<li> improperly reimburse themselves for their expenses from the companies they acquire. </li>
</ol>
<br />
Both maneuvers essentially mean they take money that is rightfully their clients money. In other words, they are thieves.<br />
<br />
Another astonishing quote from Bowden's speech:<br />
<blockquote class="tr_bq">
<span style="background-color: white; font-family: Verdana, Geneva, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px;">"The private equity model is very different [from publicly traded stock portfolios]. A private equity adviser typically uses client funds to obtain a controlling interest in a non-publicly traded company. With this control and the relative paucity of disclosure required of privately held companies, a private equity adviser is faced with temptations and conflicts with which most other advisers do not contend. For example, the private equity adviser can instruct a portfolio company it controls to hire the adviser, or an affiliate, or a preferred third party, to provide certain services and to set the terms of the engagement, including the price to be paid for the services ... or to instruct the company to pay certain of the adviser’s bills or to reimburse the adviser for certain expenses incurred in managing its investment in the company ... or to instruct the company to add to its payroll all of the adviser’s employees who manage the investment." </span></blockquote>
<b>Let me summarize that paragraph. Bowden is saying that private equity managers use their client's money to buy businesses. Once they control the business, they proceed to rob it.</b> What an incredible business model! Use someone else's money to buy businesses so that you can rape and pillage the business for your own benefit. <br />
<br />
Lastly, Borden points out that Bruce Karpati of the SEC's Enforcement Division has found that many private equity funds lie to their clients about the valuation of their investments. This also boosts fees which is another way to steal from their clients. <br />
<blockquote class="tr_bq">
<span style="background-color: white; font-family: Verdana, Geneva, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px;">"Last year at this conference, Bruce Karpati, then of the SEC’s Enforcement Division, addressed this debate, noting the importance of valuations in fund marketing. Academic studies have supported this thesis, showing that some advisers inflate valuations during periods of fundraising...</span><span style="background-color: white; font-family: Verdana, Geneva, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px;">A common valuation issue we have seen is advisers using a valuation methodology that is different from the one that has been disclosed to investors....</span><span style="background-color: white; font-family: Verdana, Geneva, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px;">."</span></blockquote>
<b>One would have to wonder how any pension fund manager could possible ponder investing in private equity funds without inherently violating their fiduciary duty to their pensioners?</b><br />
Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-55063482460039172252014-03-04T00:23:00.001-05:002014-03-04T00:23:11.541-05:00Finance Clippings: How much does the NC Pension Fund pay hedge fund a...<a href="http://financeclippings.blogspot.com/2014/03/how-much-does-nc-pension-fund-pay-hedge.html?spref=bl">Finance Clippings: How much does the NC Pension Fund pay hedge fund a...</a>: The answer is hard to figure out. While the pension fund will disclose (reluctantly) the fees paid directly to managers - in many cases tho...Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-24620757849500338762014-02-03T07:30:00.000-05:002014-02-03T07:30:00.481-05:00Politics Already at Play Within North Carolina Pension<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">What follows was my letter to the editor of the Raleigh <a href="http://www.newsobserver.com/" target="_blank">News & Observer</a> that was published on page 2 of the Work & Money Section of Sunday's paper on 2/2/2014. My letter was a response to <a href="http://www.linkedin.com/pub/andrew-m-silton/58/418/862" target="_blank">Andrew Silton's</a> column from the prior Sunday's News & Observer. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #222222; line-height: 18.479999542236328px;">Mr. Silton’s Jan. 26</span><sup style="background-color: white; color: #222222;">th</sup><span style="background-color: white; color: #222222; line-height: 18.479999542236328px;"> column, “<a href="http://www.newsobserver.com/2014/01/25/3557414/andrew-silton-beware-of-playing.html" target="_blank">Keep politics out of pensions</a>” was sparse on facts. I’d like to add some.</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The last <a href="https://www.nctreasurer.com/Inside-The-Department/OpenGovernment/Pages/Annual-Reports.aspx" target="_blank">annual report issued by Treasurer Cowell</a> shows the
state pension funding status to have fallen from 112.8% in 2000 to just 94%
now. That is to say, it is 6%
UNDER-funded. That’s roughly a $4
billion shortfall. But, Treasurer Cowell
knows the government pension accounting standards are flawed and about to
change. A <a href="https://www.nctreasurer.com/inv/IAC%20Resources/IACGASBPresentation-111412.pdf" target="_blank">Buck Consultants report</a> says
the pension will be <a href="http://investorcookbooks.blogspot.com/2013/07/how-underfunded-is-north-carolina.html" target="_blank">just 86% funded under the new rules. That’s 14% under-funded, or roughly $8 billion</a>. However, the nation’s leading
expert on public pension funding, Stanford Professor <a href="http://www.linkedin.com/profile/view?id=56775190&authType=NAME_SEARCH&authToken=NFoG&locale=en_US&srchid=446707941391410303520&srchindex=1&srchtotal=2&trk=vsrp_people_res_name&trkInfo=VSRPsearchId%3A446707941391410303520%2CVSRPtargetId%3A56775190%2CVSRPcmpt%3Aprimary" target="_blank">Joshua Rauh</a>, argues that
public pensions should calculate funding status in the manner corporate
pensions are required. <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1352608" target="_blank">Professor Rauh estimates North Carolina is $38 billion under-funded</a>. That is roughly the
equivalent of two years of <a href="http://www.osbm.nc.gov/ncosbm/budget/index.shtm" target="_blank">North Carolina tax receipts</a>. Professor Rauh will lecture at
NC State University on April 16. I
suggest Mr. Silton and <a href="http://www.linkedin.com/profile/view?id=19097700&authType=NAME_SEARCH&authToken=xXlJ&locale=en_US&srchid=446707941391411243047&srchindex=1&srchtotal=9&trk=vsrp_people_res_name&trkInfo=VSRPsearchId%3A446707941391411243047%2CVSRPtargetId%3A19097700%2CVSRPcmpt%3Aprimary" target="_blank">Treasurer Cowell</a> both attend. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://investorcookbooks.blogspot.com/2013/10/state-pension-fund-returns-ranked-for.html" target="_blank">As of 6/30/13, the annualized 10-year investment performance of the state pension of 6.6% lagged the median public pension return of 7.4%</a>. The
underperformance of 0.8% per year for 10 years for the $83 billion pension fund
translates into lost returns of $6 billion.
And, that is the cost of not being merely average. Plus,<a href="http://investorcookbooks.blogspot.com/2013/12/north-carolina-retirement-system.html" target="_blank"> the average pension fund underperformed a simple portfolio of index mutual funds</a>.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The primary cause of the state pension’s poor investment
performance</span></div>
<a href="https://investorcookbooks.blogspot.com/2014/02/politics-already-at-play-within-north.html#more">Read more »</a>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-23550891901891839472014-01-30T23:33:00.000-05:002014-01-30T23:33:15.192-05:00A Suggestion for the new NCRS Investment Fiduciary Governance Commission <div class="yiv4730996805yui_3_13_0_ym1_1_1390458764396_8365" id="yiv4730996805yui_3_13_0_ym1_1_1390458764396_4077" style="font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, 'Lucida Grande', sans-serif; font-size: 16px;">
<b><a href="https://www.nctreasurer.com/inside-the-department/News-Room/press-releases/Pages/Treasurer-Cowell-Announces-Independent-Investment-Fiduciary-Governance-Commission.aspx" target="_blank">To the North Carolina Retirement System (NCRS) Investment Fiduciary Governance Committee</a>:</b></div>
<div class="yiv4730996805yui_3_13_0_ym1_1_1390458764396_8365 yiv4730996805yui_3_13_0_ym1_1_1390842158367_5563" id="yiv4730996805yui_3_13_0_ym1_1_1390458764396_4077" style="font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, 'Lucida Grande', sans-serif; font-size: 16px;">
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I applaud Treasurer Cowell in creating your committee and look forward to hearing your recommendations. I wanted to share my thoughts. I see no reason to start from scratch, but perhaps it might be best to essentially copy another state plan that seems to perform well with great transparency. </div>
<div class="yiv4730996805yui_3_13_0_ym1_1_1390458764396_8366" id="yiv4730996805yui_3_13_0_ym1_1_1390458764396_4077" style="font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, 'Lucida Grande', sans-serif; font-size: 16px;">
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The Minnesota State Retirement System (MSRS) and <b>the Minnesota State Board of Investments (MSBI) could serve as a model</b> for what North Carolina Retirement System should aspire to emulate. Minnesota's pension is one of the largest in the country and has produced the best 3-year returns among state pension funds and second best for 10-year returns. NCRS pension returns have lagged behind the median pension significantly for these same periods and ranked 5th from last and 4th from last among states reporting for the 10-year and 3-year returns, respectively.</div>
<div class="yiv4730996805yui_3_13_0_ym1_1_1390458764396_8367" id="yiv4730996805yui_3_13_0_ym1_1_1390458764396_4077" style="font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, 'Lucida Grande', sans-serif; font-size: 16px;">
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<b>Not only has MSBI produced great returns, but they have also won awards for their excellent and timely financial reporting.</b> MSBI actually produces a Comprehensive Annual Financial Report (CAFR) that focuses ONLY on the state pension (North Carolina does not). The MSBI CAFR actually includes real financial statements with detailed expense accounting and asset reporting (North Carolina does not). The CAFR includes an audit opinion from the Minnesota Office of the Legislative Auditor. MSBI has achieved all of this with an investment staff of just 22.</div>
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With an investment staff of 26, the NCRS poor relative investment performance compared to other state funds will not be solved by adding staff. MSBI's good returns are due to a healthy 60% allocation to equities and less than 15% alternative investments (including real estate) and a focus on expense control (less than 30 bps of assets vs. NCRS over 50 bps).</div>
<div class="yiv4730996805yui_3_13_0_ym1_1_1390458764396_8369" id="yiv4730996805yui_3_13_0_ym1_1_1390458764396_4077" style="font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, 'Lucida Grande', sans-serif; font-size: 16px;">
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The MSBI pension is slightly lower funded than North Carolina, but don't let that fool you. It appears Minnesota employees only contribute 5% of their pay (up from just 4.25% a few years ago) and a full employer actuarial required contribution has not been made in the last 10 years. Meanwhile, NCRS participants contribute 6% (or more) of their pay to the pension, and our general assembly has been much better than Minnesota at making annual required actuarial contributions. So, while MSBI is not as well "funded" as NCRS, I believe you will find it is much better "managed" and has better reporting transparency.</div>
<div class="yiv4730996805yui_3_13_0_ym1_1_1390458764396_8371" id="yiv4730996805yui_3_13_0_ym1_1_1390458764396_4077" style="font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, 'Lucida Grande', sans-serif; font-size: 16px;">
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<b>I urge the North Carolina Investment Fiduciary Governance Committee to read the MSBI CAFR and compare it to the North Carolina State Treasurer's Annual Report.</b> The treasurer's annual report includes information about the pension, but also other information that is irrelevant to the pension. NCRS participants must read the treasurer's annual report, but also must know to look for and find the Government Investment Operations Report to find any expense reporting of the pension. In addition, NCRS participants must know to look for the Investment Advisory Committee reports and minutes to discover more details on investments and actuarial data. Finally, an NCRS participant must know they can find further pension details in the State of North Carolina CAFR. This CAFR is some 300 pages and covers the ENTIRE state of North Carolina. Of the 300 pages, only a handful pertain to the state pension and these pages are scattered throughout the 300 page document. NCRS participants and North Carolina tax payers need a single CAFR dedicated to the pension plans that summarizes everything that is currently scattered haphazardly across several reports. </div>
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Even after combining all the above-mentioned reports, you will find North Carolina's reporting woefully inadequate and returns alarmingly lower compared to Minnesota. The MSBI CAFR also outlines how they structure their functional staff and oversight boards and committees. <b> <a href="http://www.msrs.state.mn.us/pdf/2013CAFR.pdf" target="_blank">The MSBI CAFR can be viewed by clicking here</a>.</b></div>
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Also, South Dakota and North Dakota both have independent CPA firms that audit the retirement system CAFR each year (instead of another government entity). Additionally, while North Dakota's level of expenses and returns are nothing to brag about, their reporting<span style="font-style: italic;"> is</span> something to brag about as ND publicly reports the investment performance of each and every external manager in addition to assets managed and fees paid. Perhaps copying what works in Minnesota and adding a few tweaks to add more transparency like North and South Dakota could be a good place to start for your committee.</div>
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Thank you for your commitment to improving the NCRS pension fund.</div>
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Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com1tag:blogger.com,1999:blog-5545019894317144875.post-63586102647910658472014-01-30T07:30:00.000-05:002014-01-30T07:30:02.964-05:00More evidence you will be better off if you index your investments<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.bloomberg.com/news/2014-01-29/are-harvard-and-yale-overpaying-their-money-managers-.html" target="_blank">Click here for an article from Bloomberg</a> news that suggests college endowment investment returns fail to beat simple index funds.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">(Hat Tip to the Real McCoy)</span>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-25856814519307931532014-01-08T07:00:00.000-05:002014-01-08T07:00:00.224-05:00Bravo! State Employee's Association of North Carolina Hires Pension Investigator <span style="font-family: Arial, Helvetica, sans-serif;">I applaud the State Employee's Association of North Carolina (SEANC) for hiring a pension and legal professional to investigate the North Carolina Retirement System (NCRS). You can read the<a href="http://www.seanc.org/news/seanc-in-the-news/seanc-hires-national-sec-expert/" target="_blank"> SEANC press release by clicking here</a> or the <a href="http://www.charlotteobserver.com/2014/01/06/4592757/seanc-hires-forensic-investigator.html#.UszlqfRDu4I" target="_blank">Charlotte Observer article by clicking here</a>. </span><br>
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<span style="font-family: Arial, Helvetica, sans-serif;">Slowly but surely, more and more people are beginning to pay attention to one of North Carolina's greatest assets - the <b>$83 Billion pot of money</b> solely controlled by North Carolina's elected State Treasurer. As the treasurer essentially reports to "the people," <b>the treasurer in practice, reports to no one</b>. North Carolinian's probably don't realize the immense power the State Treasurer has as the sole-trustee of North Carolina's $83 Billion pension fund. The sole-trustee set up is rare for this country as North Carolina is one of only 4 states with this structure. No other elected politician in North Carolina controls this amount of money with virtually no checks and balances. </span><br>
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<span style="font-family: Arial, Helvetica, sans-serif;">While North Carolina has a very competent State Auditor in Beth Wood (a CPA), she has far too much on her plate to be able to give the attention required to fully understand the intricate web of details of a multi-billion dollar pension fund with increasingly complicated investments <b>managed by over 200 external managers scattered globally</b>. And, does anyone really believe the State Legislature as a body is adequately monitoring the Treasurer's office? </span><br>
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<a href="https://investorcookbooks.blogspot.com/2014/01/bravo-state-employees-association-of.html#more">Read more »</a>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-9573390672929194552014-01-03T07:00:00.000-05:002014-01-03T07:00:07.184-05:00Historical Asset Class Returns Chart 2013<div class="MsoNormal">
<span style="font-family: Arial;">2013 was a fantastic year
for investors unless you mistakenly thought gold was an investment (Buying gold is a speculation, NOT an investment since it pays no dividends or interest. However, it is very pretty!). <b>Gold fell <span style="color: red;">-28%</span> in 2013 while US stocks rose 32-38%</b>. Long-term bonds and Treasury Inflation-Protected Securities (TIPS) had one of their worst years on record with each falling <span style="color: red;">-9%</span> in value in 2013. In addition, tax-free bonds lost roughly <span style="color: red;">-2%</span> while high-yield or junk bonds returned +5%.<o:p></o:p></span><br>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOeYZyqcRu7EX32dhIlCB-hOCmSGieTUp07cniGuiASPy-4epuaQQmLz5LLbCoEftAUUJmCVfoIE9Ca8VpCAYTXMQ7aPNiAJEcbtvW3avKtXnKqm0HTVTc3DSWZRf-SwLXkna0vsIZ_bEA/s1600/2013returns.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOeYZyqcRu7EX32dhIlCB-hOCmSGieTUp07cniGuiASPy-4epuaQQmLz5LLbCoEftAUUJmCVfoIE9Ca8VpCAYTXMQ7aPNiAJEcbtvW3avKtXnKqm0HTVTc3DSWZRf-SwLXkna0vsIZ_bEA/s1600/2013returns.jpg"></a></div>
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<span style="font-family: Arial;">Hopefully you were not unfortunate enough to fall for a slick Wall Street pitch to "diversify" by "betting" on the following commodity prices. However,<a href="http://investorcookbooks.blogspot.com/2013/07/dear-treasurer-cowell-wheat-corn-and.html" target="_blank"> I know certain prominent investors were burned by these sales pitches.</a> </span><br>
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<span style="font-family: Arial;"><b><u>2013 Returns</u></b></span><br>
<span style="font-family: Arial;">Crude Oil <span style="color: red;">-2%</span></span><br>
<span style="font-family: Arial;">Heating Oil <span style="color: red;">-3%</span></span><br>
<span style="font-family: Arial;">Aluminum<span style="color: red;"> -10%</span></span><br>
<span style="font-family: Arial;">Wheat <span style="color: red;">-15%</span></span><br>
<span style="font-family: Arial;">Gold<span style="color: red;"> -28%</span></span><br>
<span style="font-family: Arial;">Silver <span style="color: red;">-37%</span></span><br>
<span style="font-family: Arial;">Corn <span style="color: red;">-38%</span></span><br>
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<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #222222; font-size: 15px; line-height: 21px;">The chart above shows the last 15 years of investment returns by asset class. On the far right I have calculated the 20-year average for each asset class and pointed out the best and worst annual returns for the past 20 years for each asset class. I love this chart - which is why I put it on the back cover of </span><a href="http://www.amazon.com/R.-Ron-Elmer/e/B004GIKMK0/ref=sr_ntt_srch_lnk_1?qid=1325367742&sr=1-1" style="background-color: white; color: #888888; font-size: 15px; line-height: 21px;" target="_blank"><b>every book I have written</b></a><span style="background-color: white; color: #222222; font-size: 15px; line-height: 21px;">. Almost everything you need to know about investing can be learned from this chart:</span></span><br>
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<li style="color: #222222; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><u>Stocks beat bonds over the long-run</u>. In the far right columns of the chart you will notice that all 4 of the major stock classes have a higher 20-year average return than all 4 of the major bond classes. You will notice that the various stock classes averaged 9-14% annual returns over 20 years while the various bond classes averaged just 5-7%. </span></li>
<li style="color: #222222; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><u>Stocks don't beat bonds EVERY year, but they win about 75-80% of the time</u>. You will also notice that a stock class claimed the top spot in 11 out of the past 15 years (and 20 out of the past 25 years).</span></li></ol></div><a href="https://investorcookbooks.blogspot.com/2014/01/historical-asset-class-returns-chart.html#more">Read more »</a>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-7917982246927904662013-12-30T07:00:00.000-05:002013-12-30T07:00:16.395-05:00Great Op-Ed by SEANC regarding North Carolina Retirement System<span style="font-family: Arial, Helvetica, sans-serif;">Great Op-Ed in Raleigh's News and Observer by Ardis Watkins of the State Employees Association of North Carolina (SEANC): <b> </b></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><b>"<a href="http://www.newsobserver.com/2013/12/17/3467663/the-truth-about-the-underperforming.html" target="_blank">The Truth About the Underperforming NC Retirement Fund</a>"</b></span>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0tag:blogger.com,1999:blog-5545019894317144875.post-78139670674217619812013-12-27T07:00:00.000-05:002013-12-27T07:00:07.017-05:00State of North Carolina's Budget (Tax Revenues and Expenditures)<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.ncleg.net/FiscalResearch/presentations/Where%20the%20Money%20Comes%20and%20Goes_2013_10_07.pdf" target="_blank">Two cool pie charts outlining where North Carolina's money comes from and where it goes can be found by clicking here. </a></span>Ron Elmerhttp://www.blogger.com/profile/18051360607937544050noreply@blogger.com0