The 2010 Callan Periodic Table of Investment Returns was recently published. A link to the Periodic Table is here.  BlackRock has a periodic table tool, which supports the creation of customized reports.  I prefer the BlackRock tool because the table includes a Diversified Portfolio. A link to the BlackRock 2010 table is here.  You can also click on the thumbnail image below.

Some observations:

• Large Cap Core, AKA S&P 500 Index, continued the recovery from 2008 with a 15.06% gain in 2010, while fixed income, AKA Aggregate Bond Index, provided a steady return of 5.2% in 2008, 5.9% in 2009, and 6.5% in 2010.
• The Diversified Portfolio is composed of 35% of the Barclays Capital US Aggregate Bond Index, 10% of the MSCI EAFE Index, 10% of the Russell 2000 Index, 22.5% of the Russell 1000 Growth Index and 22.5% of the Russell 1000 Value Index.
• It’s impossible to predict with any certainty which asset class will “win” in 2011.
• The Diversified Portfolio returned 12.99% in 2010, or 86.25% of the S&P 500 all equity asset class.
• The Diversified Portfolio produced annualized returns of  8.89% , 97.26% of the S&P 500 all equity asset class.

The table is a pictorial view of the benefit of a diversified portfolio, which consistently provides relative returns in the middle of the pack.  It’s important to own a mix of stocks, bonds, and cash, diversified across multiple asset classes to reduce the volatility of returns in a portfolio.  You can see this by comparing the Diversified Portfolio returns to those of any single asset class over the years.

Amy Buttell, a freelance writer and editor, describes creative strategies for saving money in retirement in an article for Fox Business. I provided background information and am quoted in the article.

“By the time people are ready to retire, or have already retired, they should have a very current picture of what their spending is,” says Tim Kober, a certified financial planner with Cedar Financial Advisors in Portland, Ore. “There’s the problem of spending going up in the initial part of retirement when people do all the deferred things that they’ve been wanting to, and it’s important that they don’t overdraw their nest egg to make all those nice things happen.”

Drive a Bargain

After housing, cars are one of a consumer’s biggest expenses. “People don’t think about operating costs and the total costs of owning a car, including repairs, insurance and maintenance,” Kober says.

Kober notes that couples can save money by cutting back to one vehicle. Also, retirees might employ other creative strategies like renting a cheap car for long trips instead of putting more wear and tear on their own set of wheels.

Oregon 2011 Medicare Fast Facts

• 32 Medicare Prescription Drug Plans (PDPs) available
• 85% of people with Medicare have prescription drug coverage (including 64% with Part D)
• 27% of people with Part D get Extra Help (also called the low-income subsidy, or LIS)
• 92% of people with Part D can pay a lower premium in 2011 than they did in 2010
• 81% of people with Medicare have access to a MA plan for a $0 premium
• 14 PDPs have $0 deductibles
• $14.80 is the lowest monthly premium for a PDP
• $42.90 is the lowest monthly premium for a PDP with any generic coverage in the Coverage Gap
• 8 PDPs have a premium of $0 for people who qualify for Extra Help

Source: CMS
Plan costs and coverage change each year, so all people with Medicare should check to make sure their plan still meets their needs and budget. There may be a Medicare health or drug plan available with better coverage or a lower deductible in 2011.

2011 Open Enrollment Important Dates

October
• Watch your mail for notices from Medicare, Social Security, and health and drug plans with information about changes in 2011
• Compare plans online at www.medicare.gov starting October 15
November
• “Medicare & You” 2011 arrives in your mail
• Open Enrollment starts November 15
December
• Open Enrollment ends December 31

Amy Buttell, a  freelance writer and editor, tackled the complex issue of when to claim Social Security Benefits in an article for Bankrate.com.  I provided background information and am quoted in the article.

“Retirement planning is complicated, beginning with the decision about when to begin taking your Social Security benefits. On one hand, if you need the money and don’t expect to live into your 80s, it is tempting to take Social Security as early as possible — at age 62 — to benefit from the income stream. On the other hand, you can increase your monthly payment considerably by waiting until age 70. Most people underestimate how long they are going to live.

“I like to frame the Social Security benefits issue discussion with my clients by offering a definition of it as an inflation-protected joint and survivor annuity backed by the U.S. government,” says Tim Kober, a Certified Financial Planner with Cedar Financial Advisors in Portland, Ore.

“This provides context for the ‘when to claim’ question,” he says. “The present value of Social Security payments is equal over your expected lifetime, regardless of when you claim it. If, as Clint Eastwood would say, ‘You’re feeling lucky,’ claiming late makes sense.”

You can read the full article here When should you apply for Social Security? – Bankrate.com

The article was syndicated at Yahoo! Finance.  Given that it is election season,  there are plenty of comments on the health of the Social Security system and the wisdom of the Government continuing the program.  You can read the full article and comments here When should you apply for Social Security? – Yahoo! Finance

When you have your ducks in a row, you have an investment plan, which includes an asset allocation that is aligned with your goals, time horizon, risk tolerance, and need to take risk.  Russ Thornton, an Atlanta-based wealth manager at Thornton Wealth Management, provides some timely advice  on When To Buy & When To Sell.  This post, inspired by a recent voicemail from a client, about how emotions creep into our financial decision making and can lead otherwise smart people to potentially make some dumb and costly mistakes.  That’s where an independent, objective advisor can add a lot of value – by providing a consistent voice of reason in the face of emotional influences.  You can also find Russ on Twitter @RussThornton

Another benefit of having your ducks in a row is peace of mind.  Roger Wohlner, is a Chicago-area Fee-Only Financial Advisor and Twitter devotee(addict?) @rwohlner. His recent post, Financial Conferences and Stock Market Drops, describes how most of his clients are reacting to the recent market volatility.  As luck would have it, he has been away from the office attending financial conferences twice now on days when the stock market experienced sizeable drops.  Rather than a lot of voice mails from frantic clients, he generally receives few if any calls on days like this.

By now you’re curious how to find a trusted advisor to help you get YOUR ducks in a row.  Nathan Gehring CFP®, who is based in Appleton WI, illustrates how by way of a medical analogy in his latest post And About That Free Financial Plan.  Would you select a doctor who was paid by a pharmaceutical company? Yet, this is what people do every day when selecting a financial professional. There is a better way.

The 2009 Callan Periodic Table of Investment Returns was recently published. A link to the Periodic Table is here. BlackRock also publishes a table, which I prefer because the table includes a Diversified Portfolio. A link to the BlackRock 2009 table is here.  You can also click on the thumbnail image below.

Some observations:

• Large Cap Core, AKA S&P 500 Index, swung from a -37% loss in 2008 to a 26.5% gain in 2009, while fixed income, AKA Aggregate Bond Index, provided a steady return of 5.2% in 2008 and 5.9% in 2009.
• The Diversified Portfolio is composed of 35% of the Barclays Capital US Aggregate Bond Index, 10% of the MSCI EAFE Index, 10% of the Russell 2000 Index, 22.5% of the Russell 1000 Growth Index and 22.5% of the Russell 1000 Value Index.
• It’s impossible to predict with any certainty which asset class will “win” in 2010.  Where are all the pundits who predicted a 26.5% return for the S&P 500 in 2009?
• The Diversified Portfolio returned 20.8% in 209, or 78.5% of the S&P 500 all equity asset class.

The table is a pictorial view of the benefit of a diversified portfolio, which consistently provides relative returns in the middle of the pack.  It’s important to own a mix of stocks, bonds, and cash, diversified across multiple asset classes to reduce the volatility of returns in a portfolio.  You can see this by comparing the Diversified Portfolio returns to those of any single asset class over the years.

January 2010: Tim helped the Ebers family with a Portfolio makeover, published in Money Magazine.  You can read about the Ebers family and the advice I provided here.

If you are an Intel employee, you should find this post informative.

Earlier this year Intel shareholders approved a Company proposal to exchange underwater employee options for new options at a lower strike price. Unlike Google, who granted their employees a 1 to 1 exchange with perfect timing, the Intel options exchange is designed to be a “value for value” exchange. Intel updated the Tender Offer documents today to include the preliminary exchange ratios, which are shown below.

Intel has provided an online tool (My Option Exchange) to model different scenarios and decide, on per-grant basis, to accept or reject the Exchange. The tool has a modeling feature that allows you to use different assumptions about Intel’s stock price growth. The tool will show the “cross-over point.” It’s the point at which your current options would be worth more than the new options.

Source: sec.gov

Decision Factors

The employee presentation states that the decision factors include:

1. Current Grants – Understand the details of your current grants (# of options, grant price, expiration date)
2. New Grant – Terms of new grant (4 year vesting, expire 7 years from grant date, exchange ratio)
3. Stock Price Growth – expectations for the future value stock price
4. Value – potential option future value

Let’s include several more decision factors:

1. Tenure – how long do you expect to remain employed at Intel?  What is your view of your job and organization future prospects?
2. Retirement – do you plan to retire within the next 2 to 7 years?  Are you eligible for Rule of 75?  If so, special considerations apply.
3. Risk tolerance – what is your appetite for risk?  Would you rather have an increased likelihood of a moderate gain or the current likelihood of a larger gain? How would you feel if your current option(s) expired worthless when the new option would have provided a gain?
4. Cash flow – do you have a high priority need for extra taxable income or can you afford to treat the options as variable income?

The Bottom Line

The key variables in the analysis are your forecast of the annual stock price growth rate and your risk tolerance.  History is not a useful guide since the 10 year historical stock price trend is declining.  A reasonable assumption is that Intel future stock growth will be in line with other domestic large cap growth companies.  Semiconductor companies have historically had cyclical growth, with stock price swings larger than the broad market.  Beta, a measure of volatility of a stock relative to the broad stock market, is currently 1.2 for Intel.  For example, if your large cap growth asset class forecast is 9%, then the Intel forecast is 9% * 1.2 = 10.8%.  You will get significantly different projections based on changes on the assumed growth rate, and the sensitivity of the crossover point to changes in the growth rate will vary by stock grant.

The decreased time value of older grants that are closer to expiration is reflected in the higher exchange ratio than for new grants at a similar exercise price.  Since you can exchange on a per-grant basis, you can keep some of the existing grants to capture a portion of the upside potential if you are a “true believer” in significant expected future growth.

One more thing – the exchange ratios are preliminary and could change if there is a significant change in Intel stock price during the offer period.  Earnings are announced on October 13, during the offer period.  Be sure to re-visit your decision after the final exchange ratios are announced about 10 days before the exchange window closes.

• As a result of the market volatility over the past year, domestic and international equity funds have performed in line or marginally ahead of
  benchmarks. However, both taxable and tax exempt fixed income funds’ asset weighted returns trail benchmarks by large margins.
• for the past five years through June 30, the S&P 500 beat 63% of actively managed large-cap funds, compared to 71.9% in the prior report
• The S&P MidCap 400 outperformed 73% of mid-cap funds, compared to 79.1% in the prior report
• S&P SmallCap 600 outperformed 57% of small-cap funds, compared to 85.5% in the prior report
• The five-year data is unequivocal for fixed income funds. Across all categories except emerging market debt, more than three-fourths of active managers have failed to beat fixed income benchmarks. Similarly, five-year asset-weighted average returns are lower for active funds in all but two categories
• Active management advocates will take some comfort in the latest data, which shows a active managers ahead in some categories on an asset-weighted basis, and an improvement in the fund-weighted data compared to the last report.

We often hear of the benefits of active management in times of market stress and volatility.  One common assertion is that an active manager can alter a portfolio’s makeup to invest in defensive stocks or in cash to in anticipation or during a bear market. However, a recent Vanguard research paper determined that active managers “have not consistently delivered superior performance relative to a benchmark during such periods.”  Higher costs, stock picking, and market timing again proves to be a difficult hurdle to overcome, in any market environment.

Brent Hunsberger, the personal finance columnist for The Oregonian, tackled the often complex topic of annuities in his Sunday column.  My take: immediate annuities have a role in retirement income planning.  However, it’s important to understand the embedded costs and  “apples to apples” cash-equivalent yield of a variable annuity with a Guaranteed Lifetime Income Benefit before making a purchase decision.

By Brent Hunsberger, The Oregonian August 22, 2009

…It’s apparent why they’re popular and being hawked aggressively by agents. Last year’s stock market dive sent investors scurrying for cover. Still others grappled with the (real) risk that they might outlive the money they set aside for retirement.

One of their refuges: Fixed annuities. Sales of individual fixed annuities increased by 39 percent in the first half of 2009, according to LIMRA. Variable annuity sales dropped 26 percent.

This is good news in a sense. Fixed annuities pay you a rate that won’t change in the future, no matter how the insurance company invests it. Variable annuities had been all the rage, but they often weren’t the financial deal that owners thought they were getting.

“The guaranteed income is compelling to a lot of people, especially in this environment where people are looking for safety and predictability,” said Tim Kober, a fee-only financial planner at Cedar Financial Advisors in Portland. “The question becomes, at what cost.” …

Read the entire article at OregonLive.com