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Clear Thoughts
Fear and Greed: Baby-Boomer Style
| The me generation need to pay attention to tomorrow. |
I attended a seminar at Bloomberg this week discussing baby boomer retirement. It pointed out how many will be secure, how many will need to work and how many will be tweeners. There was an article in the NY Times this past Sunday on the same topic. A salient point made was that only 7% of households will participate in over 50% of the transfer of money between generations.
The most important issues raised were: what will happen to the inherit-nots? And how will those that do inherit wealth handle their new found cash? Where will they invest?
Listening to the survey results, what struck me most was the insecurity of boomers (yes I am a boomer myself) including the ones that are considered secure. The survey was conducted using a combination of methodologies, both quantitative and qualitative, conducted through interviews.
Some underlying questions included: how much money is really enough to retire? Will I be relying on social security which may never come? I want my parents to live well forever, but will there be a material inheritance for me to use in my old age? With medical science, how long will I live? Will my health fail and when, and if I live into my 90s, is retiring at 65 still a good idea?
When asked how they expected to use their inheritance, respondents volunteered:
- Being debt-free
- Sufficient guaranteed income
- Paying for college education
- Maintain standard of living in retirement
- Long term health care
- Vacations
- Growing the remaining funds through investments.
Interestingly enough, the very last item cited concerned making money: growing the remaining funds through investments. This did not sound like a greedy generation to me. In fact it sounds like an insecure one.
Much of the rest of the seminar was devoted to investing. Speakers pointed out that some boomers invest out of fear of issues such as not having enough money at retirement. For others with a long enough timeline, the question becomes if they have the stomach for market volatility.
There were also two groups who invest out of greed. One group wishes to have everything they ever want to obtain; the other group wants to retire as soon as possible. Both groups are generally in the 7% receiving the 50% of wealth transfer.
The insecurity of each group is what struck me most. The fact that a level of risk tolerance and investment discipline seem to be programmed into each individual person, and even though intellectually investors could understand time horizons and balancing risks and rewards, they can not put those concepts into practice. People seem to establish what type of investor they are early in life and it does not seem to change, even with accumulated wealth or age.
Most of the panel assembled at the presentation talked about market returns in a mechanical sense, speaking in fairly generic terms as opposed to human terms. The big insight was disappointing: there are good and bad years in the market. Well, we all know that.
In my opinion they missed two big keys to investing successfully: asset allocation and manager selection. Allocating investments is an important determinant of overall performance. Bonds, cash, real estate, CDs and of course stocks. Each of these asset classes has sub categories, specialties, international components and specialists managing them.
One more layer we found to this issue: yesterday on MarketWatch.com there was an article on how Wall Street typically ignores investors with $500,000 to $2.5 million to invest. In other words, Wall Street firms are not focused on the people they refer to as leftovers. This makes us wonder: how rich does someone need to be to get some attention nowadays? The question poised to readers of this article is that if $5 million is the breakpoint status for a full-service brokerage firm, and it is the new minimum for wealth management services, where is an investor who wants control and service to turn?
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Today marks the end of the first quarter. We have the pleasure to report that our first quarter composite performance, encompassing all six of our style portfolios, is 11.16% compared to the S&P 500 of 3.73% without dividends reinvested, and since inception of trading in our portfolios in September and October 2004, is 41.64% compared to the S&P 500 performance of 15.65% without dividends reinvested. This performance is calculated after deducting our maximum 2% management fee. Such performance clearly speaks for itself. Paying for such superior performance through our straight forward and simple wrap fee program is clearly money well spent.
Many people are not going to inherit large sums of money, and others will. Both groups have their IRA, their taxable account, and with the aid of the press and investor education, are waking up to the need to invest in the market to achieve the returns they need to pay for college, a comfortable retirement over longer lifetimes and a host of other desires.
To best achieve our performance is to entrust us to manage your investments. The greatest compliment of our services is for you to introduce a friend or relative who may benefit from accessing our style portfolios, clear communications and benchmark beating investment performance.
Our mission is to help you achieve your investment objectives. With just a little more than two weeks to go for 2005 IRA contributions, we hope you consider us when looking for an investment home for such funds.
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