Friday Financial Five—April 12th, 2013
Friday, April 12, 2013
Hedge funds in RI’s pension
A question has recently been raised regarding the use of hedge funds in the state retirement plan. Using hedge funds for a portion of pension investment is not a new premise, and one would expect that a treasurer with a background in alternative investments would look upon them favorably. In February, Bloomberg reported that South Carolina had a negative experience with hedge funds in their pension plan, greatly increasing fees without a justifiable increase in return. There have also been recent reports that hedge funds in general have underperformed low expense balanced portfolios, so there is reason to question this strategy. Once we see the next reported annualized return, we’ll have a clearer picture about gains and whether any increased management expenses were justified.
The budgets of President Obama and Paul Ryan
Parsing the numbers of the White House’s recent budget proposal, President Obama is looking to increase spending substantially while also increasing taxes. Spending would be roughly 12 percent higher than the budget passed by the Republican controlled House of Representatives. Comparing both budgets, there is one disheartening revelation - neither intends to generate a surplus for the next decade.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTCapping IRAs at $3 million
The White House also released a statement that they intend to push for a cap of $3 million on IRA assets. There have been little details and it’s sure to be met with quite a bit of resistance, but is it remotely possible that the two sides could meet at a much higher number? The $3 million total is pretty arbitrary, and the reduction in worker pension plans is forcing more people to save for themselves. Punishing efficient investing seems counterintuitive. A 25 year old worker putting an average of $10,000 away into a 401k (to be rolled over to an IRA) for 40 years and making a 9% return crosses the $3 million threshold.
IRA contributions continue to grow
The talk of capping IRAs probably won’t stem the level of contributions. Fidelity reports that contributions have increased an average of five percent over the last four years. On average, older investors are putting away more money than young investors, which is hardly surprising. One interesting detail from the data analysis is the popularity of Roth IRAs among young investors. Eighty-six percent of investors in their twenties use the Roth IRA instead of the Traditional.
Recent gender wage-gap numbers show the disparity increasing
It’s shocking that in 2012, we actually saw the ratio of women’s to men’s median income decline by more than a percentage point, according to the IWPR. In 2011, the ratio was 82.2 percent. In 2012, it fell to 80.9 percent. Women’s median income declined over this period of time while men saw a small increase.
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 [email protected].
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