Friday Financial Five—May 24th, 2013

Friday, May 24, 2013

Dan Forbes, GoLocalProv Financial Expert

The latest RI’s pension expenses

Gina Raimondo’s office is trying to educate the public about the pension’s investment strategy. The front page of the General Treasurer’s website immediately calls attention to pension investments and has a section to answer specific questions. The performance and hedge fund expense data provided as of the end of April provides some specific details about where pensioners’ money is invested. Again, it’s accepted that hedge funds are more expensive than traditional index funds. Any analysis must determine if the added expense increases projected returns while effectively diversifying the portfolio to reduce risk.

A “Too Big to Fail” bill is in Congress

“Terminating Bailouts for Taxpayer Fairness (TBTF) Act of 2013” now has traction in Congress, and the big banks aren’t happy about it. The main ingredients boil down to two important factors. Banks with more than $500 billion in assets would be required to hold fifteen percent in liquid capital (roughly double what they have now) and they would have to include derivatives in their consolidated assets. There is already serious pushback, and, not surprisingly, it’s coming from the nation’s largest banks that would be subject to these changes.

The CFPB public consumer complaint database

Speaking of financial institutions, in an effort to pressure companies to improve their customer service, the Consumer Financial Protection Bureau created a public database online. Consumers can register complaints about banks, credit card companies, and mortgage companies. The website allows viewers to sort through thousands of complaints by all types of metrics. Those having an issue with a financial institution may want to peruse the site to see if someone else has endured a similar experience.

Risks to consider in Exchange Traded Funds

While ETFs remain all the rage, there are some risks that need to be considered for asset classes that aren’t heavily traded. Thinly traded issues can have liquidity disadvantages and increased trading costs due to wider bid-ask spreads. In all asset categories, it makes sense to look for those with heavier trade volume, and then compare historical returns with similar investment options. ETFs have made inroads by reducing the cost of investing, but it’s the after-expense return that is important.

Health Savings Account info updated for 2014

People are constantly looking to supplement traditional retirement savings vehicles. For those using high deductible plans, the Health Savings Accounts continue to be a good way to accomplish that. The IRS has recently released the maximum contribution limits, and those using a family plan can sock away $6,450 in 2013 and $6,550 in 2014. It’s another reason to stay healthy – so you don’t eat into your HSA supplemental retirement savings!

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at dforbes@forbesplanning.com.

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