Read Kennon's thoughts on the current market and your financial security.
Presidential candidate Barack Obama speaks with a broad brush. He explains the current crisis with typical overgeneralization. It is, he says, the result of “eight years of failed Republican policies.”
Republicans take the opposite tack. They follow a narrow trail from the Community Reinvestment Act. It required banks to make “affordable loans” to poor credit risks. From that, the trail goes to the profit (and bonus) engine at Fannie Mae and its major contributions to leading Democrats--- who happen to include Barack Obama.
As Strother Martin famously said in one of the late Paul Newman’s best movies, “What we have here is a failure to communicate.” (“Cool Hand Luke,” 1967)
Q: I'm wondering about taking my retirement pension as a lump sum. My financial planner recommends taking the lump sum instead of a monthly pension payment. I know he will benefit from investing the lump sum, but I'm more concerned about how I will benefit, especially if the market goes south permanently. What is your feeling about lump-sum versus monthly pension payments? I plan to retire in 2012, and the elders in my family have lived past 80. -- C.H., by e-mail
A: A growing body of research suggests that most of us would be better off if our retirement income came from multiple sources -- Social Security, a pension and our personal savings. This, after all, is the traditional three-legged stool that planners have talked about for decades. Own your home or condo debt-free, and your retirement will be still more secure.
Q. Tired of high fees and disappointing returns, I fired my broker in 2003. I am 41 and have a taxable account at Vanguard (in addition to a 401K with my employer). I adopted a "buy and hold" strategy with the following allocation: 45 percent Total Stock Market Index, 15 percent Total Bond Index, 10 percent REIT Index, and 30 percent Tax Managed International Index. I make regular monthly investments and adjust my allocation every 6 months.
During the past year, several knowledgeable friends have told me that "buy and hold" is actually a risky strategy in these uncertain times. All of them got out of the market last year and are (allegedly) making a small but positive return on CDs. Meanwhile, I watch my portfolio drop about 9 percent during the same period.
Q. A co-worker is 65. He is going to start taking Social Security even though he is still working full-time as an engineer, making good money. I am close to being the same, but one year older. I am wondering if I should do the same thing.
His rationale for taking Social Security now is that he can invest it and get a return that is better than the 8 percent a year that Social Security benefits grow. His financial adviser told him he can get him12 percent to 20 percent, even in today’s market, with stocks and funds that return good dividends. Does this ring true? ---H.T., by email from Plano, TX
A. Let me put this gently. Your friend is being led astray by his self-serving adviser.
