New Battle May Erupt Over High Retirement Fund Fees

I've read numerous articles and opinion pieces over the past week lamenting the Supreme Court's failure to rule in favor of the investor on excessive mutual fund fees and discrepancies in fees between different share classes.  Most story leads read as follows:  "The Supreme Court handed a victory to the $11 trillion mutual fund industry by endorsing a 1982 legal standard to decide the fairness of fund fees, a ruling that gives companies considerable freedom to set investment adviser charges."  Speculation abounds that a rash of new law suits challenging the status quo will be filed.

My take is very simple.  Investors should take action and vote with their feet.  Refuse to buy funds with high fees.  And if you're currently in high-fee funds move your money to low-fee alternatives.  Don't look to Washington for answers.  Empower yourself.   The marketplace works.

Here it Comes: Volcker Floats the Idea of Increased Taxes and a VAT

Our current set of politicians seem to be hellbent on dragging the country down the road to European-style socialism. Instead of enrolling in a 12-step program to cure their compulsive spending habits with other people's money, they sent out Paul Volcker yesterday to begin floating the trial balloons and laying the groundwork for higher taxes. Of course, these ideas will be sold as the only way to close the massive federal deficits caused by overspending, and the naive may fall for it. But any observer of political behavior knows the politicians will spend every dime of revenue that comes in plus whatever they think the public will tolerate above that. Let me repeat: any observer of political behavior knows the politicians will spend every dime of revenue the government receives plus whatever they think the public will tolerate above that. Don't be tricked into falling for the ruse that increased taxes are necessary to reduce the deficit. Increased taxes are necessary to support a permanent increased level of government spending, and that is the real objective. Make no mistake about the intention. The bully state is in ascendancy at the moment. Forced cradle to grave nannyism is the order of the day.

For the investor, tax efficient investing is more important now than ever since the big hand of government is preparing to dig deeper into everyone's wallet. On the income side, it is vitally important to max out 401k and IRA contribution (if tax deductible), minimize capital gains distributions through index investing, and tax manage the income portion of the portfolio so that taxable bonds are held in retirement accounts and tax-free bonds are held in regular accounts. If a VAT becomes law (and the tax and spenders are drooling over the prospect because it is hard for the average person to see and understand this tax), everyone should expect an across the board increase in the costs of all goods. There are few options to avoid this type of tax except through reduced consumption.

People should keep some things in mind when evaluating the wisdom of all this proposed tax and spending. A few pictures are worth a thousand words:

It's not the revenues.  It's the spending, stupid.  We live in the age of government greed where the federal Leviathan keeps growing faster than the economy and individual incomes, where federal worker salaries and benefits far outstrip that of the private sector and their numbers just keep growing.  The Leviathan needs to be starved, not fed, if there is any hope of preserving the American dream for generations to come.  Otherwise, we are just stealing from the future to pay for the foolishness of today.

Wealthtrack with Charles Ellis and Jason Zweig

For some reason this video takes a while to load, so please be patient. Two investment legends, Charles Ellis and Jason Zwieg, discuss the 2008 financial meltdown, and the lessons they learned:

• The unthinkable can and will happen.
• In times of crisis, risk assets like stocks and bonds go down excessively, but don't panic, they also recover excessively.
• A constant cushion of cash is a must for every portfolio.
• Every portfolio needs a core of protection, assets that are negatively correlated to the stock market, that will zig with other things zag, such as cash, gold, and U.S. Treasury Securities.

Sunday Verse: The Second Coming

The Second Coming

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

~ William Butler Yeats

1st Quarter Returns 2010

Fund Name	Symbol	Allocation	Return
Vanguard Total Stock Market ETF	VTI	6.75%	6.04%
Vanguard Value ETF	VTV	6.75%	6.22%
Vanguard Small-Cap ETF	VB	6.75%	9.67%
Vanguard Small-Cap Value ETF	VBR	6.75%	10.22%
Vanguard REIT ETF	VNQ	3.00%	10.10%
Vanguard Total Vanguard FTSE All-World ETF	VEU	5.40%	1.79%
iShares MSCI EAFE Value ETF	EFV	5.40%	-0.36%
Vanguard FTSE All-World ex-US Small Cap ETF	VSS	5.40%	4.50%
WisdomTree International Small Cap Dividend ETF	DLS	5.40%	3.82%
Vanguard Emerging Markets ETF	VWO	5.40%	2.49%
iShares S&P Dev ex-US Property ETF	WPS	3.00%	0.48%
----
Vanguard Total Bond Market ETF	BND	20.00%	1.70%
iShares S&P National AMT-Free Municipal Bond ETF	MUB	5.00%	1.17%
SPDR Barclays Capital High Yield Bond ETF	JNK	5.00%	3.71%
iShares S&P U.S. Preferred Stock Index ETF	PFF	5.00%	6.61%
iShares JPMorgan USD Emerging Markets Bond ETF	EMB	5.00%	4.05%
-----
Quarterly Portfolio Return			4.26%

The sample balanced passive portfolio (60% stocks, 40% income) returned a healthy 4.26% for the quarter with no dependence on star managers, and much lower fees than the average mutual fund, and low turnover. All performance figures were taken from Morningstar.

Burden of Paying for Health Care Will Fall on the Middle Class

Renown Washington, D.C. financial planner and author, Ric Edelman, postulates that the tax burden for the health care will fall on the middle class. His message: Obamacare will make life harder for the middle class. I agree with him. How could it be otherwise? They are the cash cow that pays for every brain fart Congress dreams up.

For an even more explicit and lengthy accounting of all the taxes and fees, this past weekend's radio show can be found at http://ricedelman.com/cs/radio_show/past_shows?id=673.

We are in deep do-do.

Computers Just Keep Getting Cheaper and Better

I stole borrowed this from http://www.4-blockworld.com/. It reminded me of my first PC, a glorious Gateway clunker which cost me close to $4,000.  This was before Windows 3, when everything was character based and DOS ruled the world.  I used this behemoth to do word processing and spreadsheets.  It would have been more cost effective to continue using pen and paper and my old typewriter.  Now I can buy a PC a step below state of the art for $500 that has more capabilities than I'll ever be able to use.  How lucky we are to live in world where the costs of electronics keep going down while the the functionality, features and speed just keep getting better.

No April Fools Here: We're Fools All Year Round

It's April Fool's Day, but this is no joke. The punch line comes about 1:25 into the video. I don't know how the naval officer keeps a straight face through the questioning. Just goes to prove you don't have to be that smart to be a successful politician. The scary thought is how much control politicians are trying to exert over our day-to-day lives. Geniuses, every single one of them.