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Net 401k Participant Transfers Almost Neutral in September

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Simply put market timing does not work. In the end we must believe that free markets work and in the long run a globally diversified portfolio will succeed in the long term. We are investing for the long term not looking for the next hot asset class.

On average, 0.03% of balances transferred on any given day. This is in line with the trailing 12-month average daily net transfer activity levels.The direction of transfers was almost neutral for the month. Although 401(k) participants moved their account balances out of fixed income funds and into equities on a majority of days (57%), the net dollars transferred went the opposite direction. A total of $60 million was transferred out of equities and into fixed income investments, representing 0.05% of total assets.

For the quarter, transfers were strongly fixed income oriented. A total of $1.4 billion moved out of equities and into fixed income investments, which represented 1.1% of total assets. The vast majority of these transfers took place in July ($946 million) and August ($432 million), according to Aon Hewitt data. 

Nearly all equity asset classes saw some outflows. Small U.S. equity funds saw the largest outflows in September, totaling $41 million. For the quarter, they lost $321. Premixed portfolios had $34 million of outflows for the month and $268 million for the quarter. 

401(k) participants also moved away from large U.S. equity funds and international funds. Large U.S. equity funds lost $25 million in September and $472 million for the quarter. International funds had $14 million transferring out for the month, and $243 million during the third quarter.

Fixed income asset classes received most of the net transfers. Bond funds received the largest amount of inflows in September, with $106 million moving to this asset class. For the quarter, $383 million flowed into bond funds. Stable value funds and money market funds also received $1 billion and $145 million for the quarter, respectively.  

Participants’ overall equity allocation was down 1.8% from 58.7% to 56.9%. Aon Hewitt said this was mainly due to the significant loss in the stock market.

Participant discretionary contributions to equities (employee only contributions) also declined slightly from 62.1% to 61.9% in September.

via plansponsor.com

This more evidence that plan participants are actively trading their account balances based on emotions and not part of a strategy. The retirement plan is intended to be invested for the long term. Remember market timing does not work.

Please comment or call to discuss how this affects your employees and yourself.

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A Gross Miscalculation

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This is just an example of why trying to beat the market will cost you. Your retirement plan is far too important to be managed by forecasters. Even the most mighty will fall.

The financial media was all atwitter. Headlines screamed “Gross dumps Treasuries.” Many investors followed his advice and performed his suggested exorcism.Fast forward to August, 2011. Gross now admits dumping bonds was a “wrong call.” The U.S. economy grew more slowly than he anticipated, lowering the yield on Treasury bonds and causing the Total Return Fund to miss out on the rising market value of older fixed-rate Treasuries. Gross admitted his mistake, telling the Financial Times, “Do I wish I had more Treasuries? Yeah, that’s pretty obvious.”

Investors in the Pimco Total Return Fund have been impacted by this “mistake.” The Total Return Fund recently ranked 501 out of 589 bond funds in its category. It has underperformed its benchmark index by 1.26 percent year to date. Gross had this response to the inability of his fund to beat a simple index: “When you’re underperforming the index, you go home at night and cry in your beer… “It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo hoo.”

Investors may not be so sanguine. It was a Gross miscalculation, illustrating the vagaries of active management. Even the best and the brightest (Gross has a stellar track record) can get it wrong. If you are relying on brokers and active managers to “beat the markets” and “add alpha,” you are gambling and not investing.

via huffingtonpost.com

Do you truly believe there is someone out there that can predict the future? Even the most famous bond investor Bill Gross gets it wrong costing his clients dearly. The best approach for most if not all investors is to own a globally diversified portfolio with low cost funds.

Please comment or call to discuss how this can affect you and your future.

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US Bond Prices and Bill Gross: Pimco’s Gross Regrets ‘Mistake’ on US Debt Call

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If an investment strategy relies on an accurate forecast of the future it will eventually fail. Eventually even the most famous traders will get it wrong. Your retirement plan is far too important to risk it on forecasters.

Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that it was a mistake to bet so heavily against the price of US government debt.

Mr. Gross emptied his $244 billion Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category.

“Do I wish I had more Treasurys? Yeah, that’s pretty obvious,” Mr Gross told the Financial Times last week, adding: “I get that it was my/our mistake in thinking that the US economy can chug along at 2 percent real growth rates. It doesn’t look like it can.”

When the yield on the 10-year Treasury [US10YT=XX  2.184    -0.06  (0%)   ] was 3.5 percent in January, Mr Gross warned that the risk of rising inflation made government debt a poor investment.

Bond prices move in the opposite direction to bond yields, which he forecast would rise as Ben Bernanke, chairman of the Federal Reserve [cnbc explains] , brought the second program of bond buying, known as quantitative easing [cnbc explains] , to an end in June.

via cnbc.com

Investors saving for retirement should not rely on active managers to predict where the market is going. No matter how long the track record, even the best will fall in the long run.

Please comment or call to discuss.

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Investors Get It Wrong — Again

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Time and time again investors listen to the financial media and make changes based on fear and greed. Remember the financial institutions make mon ey when you move your money. They don’t really care whether you make money or not.

The latest example of investors behaving badly comes from Morningstar. Once again, the past few years saw investors going the wrong way, moving assets from equity funds into bond funds, causing them to miss out on one of the greatest bull marketsever. The following data presents the behavioral gap for the one- and three-year periods ending December 2010:

  • Domestic equity funds — 2.0 percent and 1.3 percent per year, respectively
  • International equity funds — 0.6 percent and 0.8 percent per year, respectively
  • Taxable bond funds — 1.4 percent and 0.5 percent per year, respectively
  • Municipal bond funds — 1.1 percent and 1.5 percent per year, respectively

Investor activity cost tens of billions a year. The only category where the gap was relatively minor was for balanced funds. For both one-year and three-year periods, the gaps were 0.1 percent per year. Perhaps this is an advantage of balanced funds — investors in these funds tend to pay less attention, which the evidence demonstrates is a good thing.

The evidence demonstrates very clearly that investors would benefit greatly from learning from Warren Buffett, who stated in Berkshire Hathaway’s 1991 annual report: “We continue to make more money when snoring than when active.” In other words, at least when it comes to investing, inactivity is usually the better strategy. Remember this the next time you’re tempted to alter your asset allocation in reaction to the market’s latest move.

via moneywatch.bnet.com

This is evidence that investors need an adviser’s help to reach their goals. It is not about picking the right mutual fund, annuity or other financial product but rather developing and following a disciplined strategy.

Please comment or call to discuss how this affects you.

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