On Sunday, five international news outlets published a selection of more than 250,000 U.S. diplomatic cables, provided by the website WikiLeaks. The disclosure of the cables, most of them from the past three years, offers a rare unfiltered view of the secretive world of high-level diplomacy. As such, it could complicate relations with a host of friendly and unfriendly nations.
But what did we actually learn? Here are 10 key revelations from the cables:
1. Many Middle Eastern nations are far more concerned about Iran's nuclear program than they've publicly admitted. According to one cable, King Abdullah of Saudi Arabia has repeatedly asked the U.S. to "cut off the head of the snake" -- meaning, it appears, to bomb Iran's nuclear program. Leaders of Qatar, Jordan, the United Arab Emirates and other Middle Eastern nations expressed similar views.
2. The U.S. ambassador to Seoul told Washington in February that the right business deals might get China to acquiesce to a reunified Korea, if the newly unified power were allied with the United States. American and South Korean officials have discussed such a reunification in the event that North Korea collapses under the weight of its economic and political problems.
[Related: WikiLeaks docs reveal U.S. diplomats insulting world leaders]
3. The Obama administration offered sweeteners to try to get other countries to take Guantanamo detainees, as part of its (as yet unsuccessful) effort to close the prison. Slovenia, for instance, was offered a meeting with President Obama, while the island nation of Kiribati was offered incentives worth millions.
4. Afghan Vice President Ahmed Zia Massoud took $52 million in cash when he visited the United Arab Emirates last year, according to one cable. The Afghan government has been plagued by allegations of corruption. Massoud has denied taking the money out of the country.
5. The United States has been working to remove highly enriched uranium from a Pakistani nuclear reactor, out of concern that it could be used to build an illicit nuclear device. The effort, which began in 2007, continues.
6. Secretary of State Hillary Rodham Clinton ordered diplomats to assemble information on their foreign counterparts. Documents in the WikiLeaks cache also indicate that Clinton may have asked diplomats to gather intelligence on U.N. Secretary General Ban Ki-moon's plans for Iran, and information on Sudan (including Darfur), Afghanistan, Pakistan, Somalia, Iran and North Korea.
7. The State Department labeled Qatar the worst country in the region for counterterrorism efforts. The country's security services were "hesitant to act against known terrorists out of concern for appearing to be aligned with the U.S. and provoking reprisals," according to one cable.
8. Russian Prime Minister Vladimir Putin and Italian Prime Minister Silvio Berlusconi are tighter than was previously known. Putin has given the high-living Berlusconi "lavish gifts" and lucrative energy contracts, and Berlusconi "appears increasingly to be the mouthpiece of Putin" in Europe, according to one cable.
[Related: The Guardian gave State Dept. cables to the NY Times]
9. Hezbollah continues to enjoy the weapons patronage of Syria. A week after Syrian president Bashar Assad promised the United States he wouldn't send "new" arms to the Lebanese militant group, the United States said it had information that Syria was continuing to provide the group with increasingly sophisticated weapons.
10. Some cables reveal decidedly less than diplomatic opinions of foreign leaders. Putin is said to be an "alpha-dog" and Afghan President Hamid Karzai to be "driven by paranoia." German Chancellor Angela Merkel "avoids risk and is rarely creative." Libyan leader Moammar Gadhafi travels with a "voluptuous blonde" Ukrainian nurse.
The cables were obtained, via WikiLeaks, by the New York Times, the Guardian of Britain, Der Spiegel of Germany, Le Monde of France and El Pais of Spain.
Monday, 29 November 2010
Obama announces federal pay freeze
President Obama didn’t get a raise last year — nor did most of his senior staff.
That’s according to the White House’s latest salary list, which reports a nearly $39 million annual payroll. This year, the White House has made the report, which it files with Congress every year, available online for the first time. The list itemizes the salary and title of every employee of the White House, except for the vice president’s office, which is technically an arm of the Senate. The pay sheet also doesn’t include Obama, whose $400,000 annual salary is regulated by Congress. According to the latest study, the White House currently employs 469 people — down 17 positions from 2009.
There are few changes in the report from last year, in part because Obama capped the salaries of any employee making more than $100,000 a year. According to the White House, employee salaries range from $21,000 to nearly $180,000 a year.
Twenty-three top aides, including chief of staff Rahm Emanuel, press secretary Robert Gibbs, speechwriter Jon Favreau, White House counsel Bob Bauer and senior advisers David Axelrod and Valerie Jarrett, make the top full-time staff salary of $172,200. (Two health-care policy “detailees” — Michael Hash and Timothy Love — make $179,700.) By comparison, Vice President Joe Biden makes roughly $230,000 a year, according to Senate records.
White House social director Juliana Smoot makes $150,000. That’s $37,000 more than her predecessor, Desiree Rogers, who left the administration not long after a scandal involving party-crashers at a state dinner in December. Former Duke basketball star Reggie Love still makes just over $100,000 as President Obama’s body man. Not on the list: actor Kal Penn, who left his job in the White House’s Office of Public Engagement on June 1 to film the third sequel in the "Harold & Kumar" film series.
Most so-called rank-and-file members of the White House staff pull in an average income between $40,000 and $60,000 — including dozens of “staff assistants,” press aides, analysts and researchers. Three people are listed as working for free.
Sunday that although the paper's reporters had been digging through WikiLeaks trove of 250,000 State Department cables for "several weeks," the online whistleblower wasn't the source of the documents.
But if WikiLeaks—which allegedly obtained the cables from a 22-year-old army private—wasn't the Times source, than who was? Apparently, The Guardian—one of the five newspapers that had an advanced look at the cables—supplied a copy of the cables to The Times.
David Leigh, The Guardian's investigations executive editor, told The Cutline in an email that "we got the cables from WL"—meaning WikiLeaks—and "we gave a copy to the NYT."
It's not everyday that a newspaper gives valuable source material to a competitor. But Leigh explained in a second email that British law "might have stopped us through injunctions [gag orders] if we were on our own."
The Times, in an editor's note, said that the cables "were made available to The Times by a source who insisted on anonymity." A Times article on the cables said they were provided to the paper by an "intermediary." So presumably, the Guardian acted as intermediary and the Times agreed to the same embargo as the other publications involved.
On Sunday, Leigh wrote on The Guardian's site that his paper's staff spent months going through the cables. In an email, Leigh specified that The Guardian received the cables in August.
Leigh said that all the publications involved Sunday—including Spain's El Pais, France's Le Monde and Germany's Der Spiegel—"talked to each other in order to coordinate timing, and the papers talked to each other in an effort [not completely successful!] to avoid scooping each other."
Both The Times and the Guardian were among the newspapers that WikiLeaks provided the Iraq and Afghanistan war logs to prior to publishing online. But the WikiLeaks-Times relationship has been a bit rocky of late.
WikiLeaks founder and editor-in-chief Julian Assange harshly criticized The Times in October for a front-page profile of him that ran alongside the Iraq logs coverage.
Bill Keller, executive editor of the New York Times, would not confirm on Sunday night that the Guardian was the paper's source.
That's not surprising, since journalists are never quick to reveal sources. Even though Leigh confirmed it publicly, Keller still needed clearance from The Guardian. On Monday morning, Keller confirmed in a follow-up email that The Guardian provided the material to The Times.
The New Hot Money Destination
Americans have reacted to the financial crisis of 2008 in a number of ways -- curbing spending, cutting back on debt, and pulling money out of the stock market. Actively managed equity mutual funds have been one of the biggest casualties of investor wariness, with hundreds of billions of dollars leaving the coffers of these funds, presumably for the safe haven of bonds and bond funds. And while few would deny the general shift in investor preference toward bonds in recent years, there may be some more subtle forces at play here.
A fundamental shift
A recent Wall Street Journal article highlighted the fact that while retail shares of equity mutual funds have continued to bleed assets over the past two years, not all of that money is going straight to bonds. Apparently, investors are redirecting some of that cash into the institutional versions of the same funds whose retail shares they are fleeing. Since 2009, while investors pulled roughly $129 billion from retail A, B, and C shares that charge some kind of load to the investor, they actually added $72 billion to institutional share classes.
While they are typically cheaper than their retail counterparts, institutional share classes generally feature much higher investment minimums, putting them out of reach of most individual investors. However, these funds are frequently used in qualified retirement plans like 401(k)s and other tax-advantaged plans, where investors can take advantage of their lower fees without worrying about meeting the onerous minimum investments.
One take on this shift in investor behavior is that investors are moving away from using commission-based financial advisors who tend to recommend A, B, and C shares of funds to garner a commission from the fund company in the form of a front-end or deferred load. Institutional shares in brokerage accounts overseen by fee-based advisors are becoming more common, so this could indicate that more investors are embracing fee-based financial planning.
If that is true, I think that is a welcome and long-overdue change for the industry. I'm not a fan of financial advisors being paid by a fund company for directing investors into their funds. Even if the fund is in fact the most appropriate investment for the client, there is just an inherent conflict of interest in the commission-based model. As such, I would encourage any investor who is thinking about engaging the services of a financial advisor to give serious consideration to using a fee-based advisor.
Share and share alike
Beyond any potential shift in investors' preference for fee-based advisors over commission-based professionals, I think there may be some other important conclusions that we may be able to draw from this data. First of all, if investors are moving more toward institutional funds, that means they are likely doing so within the confines of their 401(k) or other defined-contribution retirement plan. Usually in such plans, the plan sponsor has chosen a menu of funds for participants to select from.
To me, this indicates more of a desire on investors' part for guidance and help in the fund selection process. When the market is going up, it's easy to think you can do it all on your own. But in challenging environments, a lot of folks want some advice. So don't be afraid to seek out a second, or third, opinion on your investments. Whether that be through the services of a fee-based advisor or even the expertise of the Fool's own Rule Your Retirement investment newsletter service, there are reliable options out there that can give you a leg up in finding the best investments for your portfolio.
Secondly, it could be that investors are becoming more savvy about the fees and expenses they are paying for their investments. Actively managed mutual funds got slammed in the recent downturn, leading many folks to wonder why they were paying extra for middling performance results. If investors can save some money by moving to institutional class shares, it creates less of a hurdle for portfolio managers to overcome. As an example, the A shares of the hugely popular PIMCO Total Return Fund (PTTAX) come with a 3.75% front-end load and a 0.90% expense ratio. However, if you've got $1 million, or have access to the fund within a qualified plan, the institutional share class of PIMCO Total Return (PTTRX) costs just 0.46% and has no loads. Over time, that means investors in the institutional share classes are paying half of what retail investors are. So if you can access an institutional share class in a solid fund in your retirement plan, it's probably a smart idea to do so.
Opting out
While I can understand the reasoning behind fund companies giving a price concession to larger clients or larger accounts, there is something about the practice that rubs me the wrong way. Fortunately for investors, there are some funds shops that don't try to charge different price points for retail and institutional clients. Dodge & Cox is one fund shop that has just one share class for all of its mutual funds. For example, Dodge & Cox Stock (DODGX) has been around for roughly 45 years and doesn't charge different prices for investors with a higher or lower amount of assets in the fund. For an incredibly low 0.52% a year, you can get access to a large-value fund that has outperformed 97% of its peers in the past decade and a half. Not a bad deal for an investor of any portfolio size.
Of course, if you're leery about the whole business of what you're being charged for actively managed funds, you can always avoid the whole debate and stick to a handful of low-cost exchange-traded funds. Some of my favorite ETFs include the SPDR S&P 500 (NYSE: SPY - News) for large-cap domestic stock coverage, the Vanguard Total Bond Market ETF (NYSE: BND - News) for a broad bond market allocation, and the Vanguard Emerging Markets Stock ETF (NYSE: VWO - News) for exposure to red-hot developing markets.
Not every investor will be able to access the institutional share class of their favorite fund (if in fact the fund shop even offers one), but if you can do so in your retirement plan, consider buying in. It could save you a ton of money in the long run.
Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. The Fool owns shares of Vanguard Emerging Markets Stock ETF. Try any of our Foolish newsletter services free for 30 days.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
A fundamental shift
A recent Wall Street Journal article highlighted the fact that while retail shares of equity mutual funds have continued to bleed assets over the past two years, not all of that money is going straight to bonds. Apparently, investors are redirecting some of that cash into the institutional versions of the same funds whose retail shares they are fleeing. Since 2009, while investors pulled roughly $129 billion from retail A, B, and C shares that charge some kind of load to the investor, they actually added $72 billion to institutional share classes.
While they are typically cheaper than their retail counterparts, institutional share classes generally feature much higher investment minimums, putting them out of reach of most individual investors. However, these funds are frequently used in qualified retirement plans like 401(k)s and other tax-advantaged plans, where investors can take advantage of their lower fees without worrying about meeting the onerous minimum investments.
One take on this shift in investor behavior is that investors are moving away from using commission-based financial advisors who tend to recommend A, B, and C shares of funds to garner a commission from the fund company in the form of a front-end or deferred load. Institutional shares in brokerage accounts overseen by fee-based advisors are becoming more common, so this could indicate that more investors are embracing fee-based financial planning.
If that is true, I think that is a welcome and long-overdue change for the industry. I'm not a fan of financial advisors being paid by a fund company for directing investors into their funds. Even if the fund is in fact the most appropriate investment for the client, there is just an inherent conflict of interest in the commission-based model. As such, I would encourage any investor who is thinking about engaging the services of a financial advisor to give serious consideration to using a fee-based advisor.
Share and share alike
Beyond any potential shift in investors' preference for fee-based advisors over commission-based professionals, I think there may be some other important conclusions that we may be able to draw from this data. First of all, if investors are moving more toward institutional funds, that means they are likely doing so within the confines of their 401(k) or other defined-contribution retirement plan. Usually in such plans, the plan sponsor has chosen a menu of funds for participants to select from.
To me, this indicates more of a desire on investors' part for guidance and help in the fund selection process. When the market is going up, it's easy to think you can do it all on your own. But in challenging environments, a lot of folks want some advice. So don't be afraid to seek out a second, or third, opinion on your investments. Whether that be through the services of a fee-based advisor or even the expertise of the Fool's own Rule Your Retirement investment newsletter service, there are reliable options out there that can give you a leg up in finding the best investments for your portfolio.
Secondly, it could be that investors are becoming more savvy about the fees and expenses they are paying for their investments. Actively managed mutual funds got slammed in the recent downturn, leading many folks to wonder why they were paying extra for middling performance results. If investors can save some money by moving to institutional class shares, it creates less of a hurdle for portfolio managers to overcome. As an example, the A shares of the hugely popular PIMCO Total Return Fund (PTTAX) come with a 3.75% front-end load and a 0.90% expense ratio. However, if you've got $1 million, or have access to the fund within a qualified plan, the institutional share class of PIMCO Total Return (PTTRX) costs just 0.46% and has no loads. Over time, that means investors in the institutional share classes are paying half of what retail investors are. So if you can access an institutional share class in a solid fund in your retirement plan, it's probably a smart idea to do so.
Opting out
While I can understand the reasoning behind fund companies giving a price concession to larger clients or larger accounts, there is something about the practice that rubs me the wrong way. Fortunately for investors, there are some funds shops that don't try to charge different price points for retail and institutional clients. Dodge & Cox is one fund shop that has just one share class for all of its mutual funds. For example, Dodge & Cox Stock (DODGX) has been around for roughly 45 years and doesn't charge different prices for investors with a higher or lower amount of assets in the fund. For an incredibly low 0.52% a year, you can get access to a large-value fund that has outperformed 97% of its peers in the past decade and a half. Not a bad deal for an investor of any portfolio size.
Of course, if you're leery about the whole business of what you're being charged for actively managed funds, you can always avoid the whole debate and stick to a handful of low-cost exchange-traded funds. Some of my favorite ETFs include the SPDR S&P 500 (NYSE: SPY - News) for large-cap domestic stock coverage, the Vanguard Total Bond Market ETF (NYSE: BND - News) for a broad bond market allocation, and the Vanguard Emerging Markets Stock ETF (NYSE: VWO - News) for exposure to red-hot developing markets.
Not every investor will be able to access the institutional share class of their favorite fund (if in fact the fund shop even offers one), but if you can do so in your retirement plan, consider buying in. It could save you a ton of money in the long run.
Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. The Fool owns shares of Vanguard Emerging Markets Stock ETF. Try any of our Foolish newsletter services free for 30 days.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
The Best Emerging Market Play You Never Thought Of
Investors agree that Western economies are going nowhere. Money is flowing into emerging markets at a record pace, as everyone from hedge fund managers to the man on the city bus look toward far-flung companies they've never heard of.
Not me, though.
I'm not writing off the U.K., Europe, or the U.S. I'm also well aware that GDP and favorable demographics aren't everything to an equity investor -- the price you pay for growth matters.
But I also believe some of the most attractive opportunities to play the very real emerging market story are right on our doorstep.
Over here, over there
When I visited London-based Diageo (NYSE: DEO - News) last week, for instance, I sensed frustration that the market underestimates the long-term value of Diageo's brands in opening up new territories.
Now another company I own for its overseas growth potential is addressing this issue. U.K. grocery titan Tesco (TSCDY.PK) just hosted an analyst event in South Korea and China that's clearly aimed at waking up investors to its extraordinary rollout across Asia.
Did you know 31% Tesco's sales are achieved outside of the U.K.? That 22% of its profits are? Or that those figures were merely 10% and 5% a decade ago?
Tesco's familiarity can blind us to the scale of its overseas operations:
* 65% of its selling space is outside the U.K.
* More than half of Tesco's profit growth this year has come from Asia and Europe.
* Tesco is either first or second-placed in nine international markets.
* It's market leader in Malaysia, Thailand, and catching the top dog in South Korea.
* Life-for-like sales at Tesco China are expanding at over 8% a year.
Profit potential
It's not going swimmingly in every foreign territory -- sales are remorselessly shrinking in Japan, and the woes of its U.S. Fresh'n'Easy business are well-known. But the potential in Asia dwarfs these hiccups.
Consider South Korea, for instance, where Tesco operates under the Homeplus brand. GDP has grown at 5.4% on a compound basis for four decades, and thanks to 118 hypermarkets and 245 express stores, Tesco already has 1 million square meters of South Korean floor space.
In 11 years, sales have risen from 100 million pounds to 4.5 billion pounds, and the territory now delivers 287 million pounds in profit. Yet with just 4.3% of the total retail market versus 4.8% for its leading rival, Tesco sees plenty more growth ahead.
If you see a Tesco superstore outside every U.K. town and wonder where growth will come from, you're looking in the wrong place.
Made in Britain
In countries like South Korea, Tesco has seemingly achieved the grand prize of understanding local requirements, and addressing them with the logistical know-how it's perfected in the U.K.
Having pioneered the Clubcard concept in the U.K., for example, Tesco has deployed it in nine other countries. And where the U.K. operation invested more than 100 million pounds in ordering systems during the past decade, it costs just 2 million pounds to deploy them in a new country.
Famously, "retail is detail," and leveraging Tesco's U.K. smarts doesn't stop with the supply chain. By remodeling its South Korean aisle format along U.K. lines, it improved like-for-like sales by 10%.
Tesco the property giant
Naturally, it's the Chinese opportunity that's mouth-watering. Tesco says it has spent six years learning all about this vast country, that it's placed its bets in the fastest-growing regions, and that it has identified crucial differences between, say, the older, more conservative northern regions, and the younger, migration-fed south.
Big retailers are engaged in a land grab in China, which should see the number of hyper- and superstores more than triple from 2005's 1,000 to nearly 4,000 by 2014. To help it secure the best spots, Tesco will actually build many dozen of malls over the next five years, each featuring a Tesco hypermarket as an anchor tenant.
Consider that the 90 key cities on Tesco's radar have a combined population of 120 million (twice the U.K.), and you get a sense of how China could reshape this company in the long term.
Risking it
Of course, expansion on this scale isn't cheap -- and some analysts are already unhappy at how Tesco handles its capital expenditure via sales to joint ventures, for instance.
We'll have to wait for big returns, too. According to Tesco's figures, new stores don't become fully profitable for four years, which means a lot of up-front costs for jam further down the line. Overseas expansion will complicate Tesco's accounts for years to come, compared to Sainsbury or Morrison.
I think that's a price worth paying. With Tesco's international boss Philip Clarke due to take over at the top from the revered Sir Terry Leahy in March, it is clear where Tesco is placing its bets.
And at a prospective P/E of 12 with a 3.6% dividend yield, we're hardly being overcharged to go along for the ride.
Not me, though.
I'm not writing off the U.K., Europe, or the U.S. I'm also well aware that GDP and favorable demographics aren't everything to an equity investor -- the price you pay for growth matters.
But I also believe some of the most attractive opportunities to play the very real emerging market story are right on our doorstep.
Over here, over there
When I visited London-based Diageo (NYSE: DEO - News) last week, for instance, I sensed frustration that the market underestimates the long-term value of Diageo's brands in opening up new territories.
Now another company I own for its overseas growth potential is addressing this issue. U.K. grocery titan Tesco (TSCDY.PK) just hosted an analyst event in South Korea and China that's clearly aimed at waking up investors to its extraordinary rollout across Asia.
Did you know 31% Tesco's sales are achieved outside of the U.K.? That 22% of its profits are? Or that those figures were merely 10% and 5% a decade ago?
Tesco's familiarity can blind us to the scale of its overseas operations:
* 65% of its selling space is outside the U.K.
* More than half of Tesco's profit growth this year has come from Asia and Europe.
* Tesco is either first or second-placed in nine international markets.
* It's market leader in Malaysia, Thailand, and catching the top dog in South Korea.
* Life-for-like sales at Tesco China are expanding at over 8% a year.
Profit potential
It's not going swimmingly in every foreign territory -- sales are remorselessly shrinking in Japan, and the woes of its U.S. Fresh'n'Easy business are well-known. But the potential in Asia dwarfs these hiccups.
Consider South Korea, for instance, where Tesco operates under the Homeplus brand. GDP has grown at 5.4% on a compound basis for four decades, and thanks to 118 hypermarkets and 245 express stores, Tesco already has 1 million square meters of South Korean floor space.
In 11 years, sales have risen from 100 million pounds to 4.5 billion pounds, and the territory now delivers 287 million pounds in profit. Yet with just 4.3% of the total retail market versus 4.8% for its leading rival, Tesco sees plenty more growth ahead.
If you see a Tesco superstore outside every U.K. town and wonder where growth will come from, you're looking in the wrong place.
Made in Britain
In countries like South Korea, Tesco has seemingly achieved the grand prize of understanding local requirements, and addressing them with the logistical know-how it's perfected in the U.K.
Having pioneered the Clubcard concept in the U.K., for example, Tesco has deployed it in nine other countries. And where the U.K. operation invested more than 100 million pounds in ordering systems during the past decade, it costs just 2 million pounds to deploy them in a new country.
Famously, "retail is detail," and leveraging Tesco's U.K. smarts doesn't stop with the supply chain. By remodeling its South Korean aisle format along U.K. lines, it improved like-for-like sales by 10%.
Tesco the property giant
Naturally, it's the Chinese opportunity that's mouth-watering. Tesco says it has spent six years learning all about this vast country, that it's placed its bets in the fastest-growing regions, and that it has identified crucial differences between, say, the older, more conservative northern regions, and the younger, migration-fed south.
Big retailers are engaged in a land grab in China, which should see the number of hyper- and superstores more than triple from 2005's 1,000 to nearly 4,000 by 2014. To help it secure the best spots, Tesco will actually build many dozen of malls over the next five years, each featuring a Tesco hypermarket as an anchor tenant.
Consider that the 90 key cities on Tesco's radar have a combined population of 120 million (twice the U.K.), and you get a sense of how China could reshape this company in the long term.
Risking it
Of course, expansion on this scale isn't cheap -- and some analysts are already unhappy at how Tesco handles its capital expenditure via sales to joint ventures, for instance.
We'll have to wait for big returns, too. According to Tesco's figures, new stores don't become fully profitable for four years, which means a lot of up-front costs for jam further down the line. Overseas expansion will complicate Tesco's accounts for years to come, compared to Sainsbury or Morrison.
I think that's a price worth paying. With Tesco's international boss Philip Clarke due to take over at the top from the revered Sir Terry Leahy in March, it is clear where Tesco is placing its bets.
And at a prospective P/E of 12 with a 3.6% dividend yield, we're hardly being overcharged to go along for the ride.
Make the Most of Mid-Life Financial Planning
In all likelihood, outside of this 10- to 20-year window you'll never take home as much pay again. Don't make the error of assuming that your current earnings will remain constant, and take the following steps to ensure you have a plan in place that should help keep your portfolio on track.
Organize your portfolio. Allocate your portfolio among the major asset classes of equities, fixed-income securities, and cash equivalents based on your goals, your tolerance for risk, and your time horizons.
Generally speaking, the larger the equity portion of your portfolio, the greater the potential for growth and the greater amount of risk. The more fixed-income securities you include, the greater the potential for income and preservation of principle. Fixed-income investments are guaranteed by the issuer as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Most importantly, you may need to periodically rebalance your portfolio in order to remain consistent with your original allocation, or modify it as you come closer to realizing your goals.
Don't overlook tax planning. If you are in your late 30s to late 50s, chances are good that your income-tax bracket is higher during this period than in your early years, or when you retire.
Consider maximizing pretax contributions to your employer-sponsored retirement plan or making deductible contributions to an IRA (if you're eligible) to help reduce current income while providing tax-deferred savings opportunities.
Also, keep in mind that short-term capital gains are taxed as income, while long-term capital gains and dividends are taxed at lower rates. And don't underestimate the potential benefit of including tax-exempt bonds in your portfolio.*
Protect what you've accomplished. As your wealth continues to increase, it's important to preserve what you've accumulated and safeguard your future. That's why estate planning and life insurance are two of the cornerstones of a sound financial plan.
A qualified legal professional can help you implement an estate plan that is best for your situation, or review an existing plan to ensure it is still consistent with your goals. Also, be sure you have enough life insurance in place to help cover any liabilities--such as your mortgage--and protect your family's financial future.
Ultimately, mid-life shouldn't be a time of crisis from a financial perspective. Instead, it's a time to take advantage of some of your most productive years. By acting on these simple pointers, you may be in a better position to enjoy the fruits of your labor for the long run.
*Some tax-exempt investments may be subject to the federal alternative minimum tax, as well as federal or state capital gains taxes.
Doug Lockwood, CFP is a Partner at Harbor Lights Financial Group, a full service wealth-management team that has been dedicated to assisting clients in the accumulation and preservation of their wealth for over eighteen years. He was recently named one of America's Top 100 Financial Advisors by Registered Rep Magazine (August 2010) based on assets under management.
Organize your portfolio. Allocate your portfolio among the major asset classes of equities, fixed-income securities, and cash equivalents based on your goals, your tolerance for risk, and your time horizons.
Generally speaking, the larger the equity portion of your portfolio, the greater the potential for growth and the greater amount of risk. The more fixed-income securities you include, the greater the potential for income and preservation of principle. Fixed-income investments are guaranteed by the issuer as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Most importantly, you may need to periodically rebalance your portfolio in order to remain consistent with your original allocation, or modify it as you come closer to realizing your goals.
Don't overlook tax planning. If you are in your late 30s to late 50s, chances are good that your income-tax bracket is higher during this period than in your early years, or when you retire.
Consider maximizing pretax contributions to your employer-sponsored retirement plan or making deductible contributions to an IRA (if you're eligible) to help reduce current income while providing tax-deferred savings opportunities.
Also, keep in mind that short-term capital gains are taxed as income, while long-term capital gains and dividends are taxed at lower rates. And don't underestimate the potential benefit of including tax-exempt bonds in your portfolio.*
Protect what you've accomplished. As your wealth continues to increase, it's important to preserve what you've accumulated and safeguard your future. That's why estate planning and life insurance are two of the cornerstones of a sound financial plan.
A qualified legal professional can help you implement an estate plan that is best for your situation, or review an existing plan to ensure it is still consistent with your goals. Also, be sure you have enough life insurance in place to help cover any liabilities--such as your mortgage--and protect your family's financial future.
Ultimately, mid-life shouldn't be a time of crisis from a financial perspective. Instead, it's a time to take advantage of some of your most productive years. By acting on these simple pointers, you may be in a better position to enjoy the fruits of your labor for the long run.
*Some tax-exempt investments may be subject to the federal alternative minimum tax, as well as federal or state capital gains taxes.
Doug Lockwood, CFP is a Partner at Harbor Lights Financial Group, a full service wealth-management team that has been dedicated to assisting clients in the accumulation and preservation of their wealth for over eighteen years. He was recently named one of America's Top 100 Financial Advisors by Registered Rep Magazine (August 2010) based on assets under management.
What Employers Want to Do When You're Not Looking
Many employers want to make a crucial decision for you. That might seem like an infringement on your liberty, a violation of your rights, or at the very least, incredibly annoying. But in this case, it's actually a good thing.
The fuss in question revolves around your retirement nest egg. As pensions grow increasingly endangered, more and more of us must shoulder the responsibility for our own financial futures. Our employers are helping us out via 401(k)s and similar retirement plans, but for most of us, that's far from enough.
The bad news
For one thing, 401(k) plans won't guarantee you enough to live off in retirement unless you save aggressively and invest effectively. It's not sufficient to plow a lot of money into your account if you're averaging a paltry return. If you save $10,000 per year for 20 years, but you stick it in a zero-interest checking account, all you'll have at the end is the same $200,000 you saved. However, it's also not enough to earn great rates of return on modest contributions. You need both.
Worse still, many workers are not participating in their plans at all. According to the 2010 Retirement Confidence Survey, 27% of American workers have saved less than $1,000 for retirement (excluding the value of their homes or pensions), while more than half have saved just $25,000 or less.
The good news
Fortunately, we don't have to face a bleak future. Save and invest well enough, and you can end up quite comfortable. But taking that action can be hard for many of us procrastinators to get around to doing.
Enter those power-happy, dictatorial employers. A survey of 50 large companies that offer defined contribution retirement plans such as 401(k)s found that 63% would like to see participation in the plans become mandatory. And 98% would include automatic plan enrollment in an ideal plan.
Already working
That's not a new idea. Many companies have been enrolling new workers in retirement plans by default, unless they opt out. This has generally been well-received and effective, but it often doesn't go far enough, since the starting contribution rates are often too small.
Still, even a little improvement is worthwhile. A Schwab study found that among companies that automatically enrolled employees, participation rates were 15 percentage points higher. And among those companies that automatically increased contribution rates over time, 83% of participants maintained the increased amounts.
Behold Chile
The nation of Chile offers an inspiring example of how much further we might go in this direction. The country requires employees to contribute 10% of their income or more toward their retirement. Workers have choices about how much risk they take on with their money, but the government keeps them from being way too risky (or not risky enough). Risk is reduced over time as employees approach retirement, and then funds are converted into guaranteed annuities. Go ahead and call that a nanny state, but it's likely to leave its citizens much better off than the average American worker.
Mandatory participation in retirement plans for American workers could be a powerful improvement over our status quo, but only if it's robust enough to help workers invest sufficiently and effectively. Rather than fighting this expansion of your employer's power, you and your nest egg might want to embrace it.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
The fuss in question revolves around your retirement nest egg. As pensions grow increasingly endangered, more and more of us must shoulder the responsibility for our own financial futures. Our employers are helping us out via 401(k)s and similar retirement plans, but for most of us, that's far from enough.
The bad news
For one thing, 401(k) plans won't guarantee you enough to live off in retirement unless you save aggressively and invest effectively. It's not sufficient to plow a lot of money into your account if you're averaging a paltry return. If you save $10,000 per year for 20 years, but you stick it in a zero-interest checking account, all you'll have at the end is the same $200,000 you saved. However, it's also not enough to earn great rates of return on modest contributions. You need both.
Worse still, many workers are not participating in their plans at all. According to the 2010 Retirement Confidence Survey, 27% of American workers have saved less than $1,000 for retirement (excluding the value of their homes or pensions), while more than half have saved just $25,000 or less.
The good news
Fortunately, we don't have to face a bleak future. Save and invest well enough, and you can end up quite comfortable. But taking that action can be hard for many of us procrastinators to get around to doing.
Enter those power-happy, dictatorial employers. A survey of 50 large companies that offer defined contribution retirement plans such as 401(k)s found that 63% would like to see participation in the plans become mandatory. And 98% would include automatic plan enrollment in an ideal plan.
Already working
That's not a new idea. Many companies have been enrolling new workers in retirement plans by default, unless they opt out. This has generally been well-received and effective, but it often doesn't go far enough, since the starting contribution rates are often too small.
Still, even a little improvement is worthwhile. A Schwab study found that among companies that automatically enrolled employees, participation rates were 15 percentage points higher. And among those companies that automatically increased contribution rates over time, 83% of participants maintained the increased amounts.
Behold Chile
The nation of Chile offers an inspiring example of how much further we might go in this direction. The country requires employees to contribute 10% of their income or more toward their retirement. Workers have choices about how much risk they take on with their money, but the government keeps them from being way too risky (or not risky enough). Risk is reduced over time as employees approach retirement, and then funds are converted into guaranteed annuities. Go ahead and call that a nanny state, but it's likely to leave its citizens much better off than the average American worker.
Mandatory participation in retirement plans for American workers could be a powerful improvement over our status quo, but only if it's robust enough to help workers invest sufficiently and effectively. Rather than fighting this expansion of your employer's power, you and your nest egg might want to embrace it.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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