John Bogle’s Six Lessons for Investors

There is almost no limit to the ability of investors to ignore the lessons of the past. This cost them dearly last year. Here are six of the most important of these lessons for investors:

1) Beware of market forecasts, even by experts. As 2008 began, strategists from Wall Street’s 12 major firms forecast the end-of-the-year closing level and earnings of the Standard and Poor’s 500 Stock Index. On average, the forecast was for a year-end price of 1,640 and earnings of $97. There was remarkably little disparity of opinion among these sages.

Reality: the S&P closed the year at 903, with reported earnings estimated at $50.

Strategists aren’t always wrong. But they have been consistent, betting year after year that the market will rise, usually by about 10%. Thus, they got it about right in 2004, 2006 and 2007, but also totally missed the market declines in 2000, 2001 and 2002, and vastly underestimated the resurgence in 2003.

Ignore the forecasts of inevitably bullish strategists. Bearish strategists on Wall Street’s payroll don’t survive for long.

Read the rest of John Bogle’s column here.

Matt / Google+

Congress Revises Retirement-Fund Rules

A new tax law will allow retirees to skip required withdrawals from individual retirement accounts and related accounts this year. The change — signed into law by President Bush last month — is intended to give beaten-down nest eggs time to rebound from the brutal bear market.

But the new law may also create confusion, particularly for those just starting to take required withdrawals.

“The [existing] rules are confusing enough,” says Ed Slott, an IRA consultant in Rockville Centre, N.Y. “Now, more people than ever are going to get tripped up.”

Read the rest of the article at the Wall Street Journal.

Matt / Google+

How Much Does Your 401(k) Cost You?

Many workers around the country participate in their company’s 401(k) plan.  While these are great vehicles to save money toward retirement, they are often loaded with high expenses and hidden fees.  This artice in the Wall Street Journal reviews what kind of information to look at when selecting mutual funds in a 401(k) plan and what to look out for.  While not necessarily groundbreaking news, the author mentions to be on the lookout for high expense ratios, 12b-1 fees, and short term trading costs.

Here’s an excerpt:

You may not realize it, but you could be paying thousands of dollars a year in fees on your 401(k) retirement account, hidden expenses that affect how your savings will grow. The government is now trying to expose those charges so you can make better investment decisions.

Under regulations proposed by the Department of Labor, 401(k) plans every year will have to disclose each investment’s annual expense ratio — the percentage that goes to management and other costs — along with more detailed performance data. In addition, any administrative or other fees deducted from your account will have to be spelled out. New regulations may go into effect as soon as Jan. 1.

Matt / Google+

Want to Make Millions? Dilbert Has the Secret

Have you ever been asked or tempted to attend a seminar that supposedly will tell you how to turn a small amount of money into millions?  You see these seminars promoted on late night television infomercials and advertisements in newspapers.  While it is certainly might be tempting to try out, many people are well aware that they are a scam.  These seminars are full of empty promises and require participants to open their checkbooks in order to hear the “secret” to making millions.  Take a look at this Dilbert comic strip to see what happens at these seminars without having to spend a dime of your own money.

Matt / Google+