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Mom was right…………. September 24, 2015

Posted by forwardfinancialplanning1 in Financial Planning, High Yield Bond Funds, International Equity Funds, Investing-General, Large Cap Growth.
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There was no shortage of parental wisdom in the household of my youth.  And, while neither of my parents had an abundance of formal education, growing up in the Great Depression had taught them many important life lessons.  My mom would frequently remind us to set aside and save some money “for a rainy day.”  It’s a shame that so many Americans failed to learn these important financial axioms.

I’m basing this lament on some recent data released from a survey by bankrate.com.  They found that 30 million Americans had tapped retirement savings in the last 12 months to pay for an unexpected expense. Baby boomers were the most likely age grouping to have done so as some 26% of those aged 50-64 answered that their finances had deteriorated and 17% had used a 401k or similar retirement savings account to pay for an emergency expense.

Some years I spent in the in-bound call center of a major 401k plan administrator also reinforced this message.  Three fourths of the calls we took were to assist a plan participant who was originating a 401k plan loan to themselves.  Likewise, many calls were for “hardship withdrawals” which do even greater damage to a participant’s retirement preparation.  Many callers would comment that they “had to do it because of an unforeseen emergency” such as a car repair, a leaky roof or what have you.  I can remember several poor souls who paid a $100 loan origination fee (levied by their employer) to borrow $1,000 from their balance.

PEOPLE!!!!  —–Cars are going to have problems, roofs are going to leak and kids are going to break their  eye glasses.  These shouldn’t be surprises in life but rather they are certainties……………..the only surprise should be the form in which the emergency will take.   Emergency funds should be in place for emergencies!!!


Don’t come late to the party…. March 1, 2011

Posted by forwardfinancialplanning1 in High Yield Bond Funds, Investing-General.
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Several previous posts ( Dec 15, 2010 , et. al.) on this site have commented on the huge cash inflows into bond mutual funds over the past two years, suggesting that this often indicates “performance chasing” on the part of investors.  Now that  the yields on most investment grade bond funds have bottomed at rates that are at multigenerational lows, the cash inflow phenomenon may have spread to high yield bonds.  According to EPFR Global, cash inflows into high yield funds reached a record net of $1.4 billion for the week ended February 9.  This took place despite the fact that for that same week the yield of the  Merrill Lynch US High Yield Master II Index stood at only 6.87%.  This yield was only 3.26% above the Ten Year Treasury, a far cry from the 22.3% difference at the December 2008 height of the credit crisis.  Once again, investors might be chasing performance as the average high yield bond fund gained 18.4% during the past 12 months, including reinvested dividends.  If history is any guide, this trend will not have a happy ending, so one should think twice before joining this party.