MutualFunds - The Seattle Times

D4 Business |
2R
| SUNDAY, JANUARY 25, 2015
MutualFunds
FUND­RIPPING BOOK
MISSES THE POINT
“In the past, we really
didn’t have much of an
alternative to mutual funds
Chuck Jaffe
and this was something
Syndicated columnist
investors were OK with
Every few
because they figured there’s
years, some­
nothing else out there,” Kim
one writes a
said. “Today, we have
new book
something called separate
uncovering
accounts.”
the latest,
Separately managed
greatest
accounts (SMAs) have been
failings of
around for a while, but
mutual funds and suggest­
what Kim said makes them
ing that the road to financial more attractive now is im­
ruin is littered with bad
proved transparency.
mutual­fund investments.
Yes, the SMA gives the
When I started out cover­ manager transparency —
ing the industry, it was
instead of getting a state­
“Surviving the Coming
ment showing a line item
Mutual Fund Crisis,” which for the XYZ Fund, there’s a
was followed by “Hazard­
list of all of the securities
ous to Your Wealth: Ex­
held in the portfolio individ­
traordinary Popular Delu­
ually that the investor can
sions and the Madness of
check on a moment’s notice
Mutual Fund Experts,”
— and there is “personal­
written by Robert Mark­
ized attention” from the
man, who himself struggled money manager, but it’s
famously as a fund manag­
almost a form of “mass
er.
customization,” where it’s
In 2002, it was “The great better than one­size­fits­all,
Mutual Fund Trap,” co­au­
but it’s still one­recipe­
thored by Gary Gensler,
serves­many.
who went on to serve as the
But there’s a cost for that
chairman of the Commodity personalized attention. Kim
Futures Trading Commis­
noted that at his firm, cli­
sion, on to 2009’s “Enough
ents would pay 1 percent for
Bull: How to Retire Well
a separately managed ac­
without the Stock Market,
count, with the fee for the
Mutual Funds or Even an
portfolio management then
Investment Advisor.”
added to the mix.
There have been others
Considering that most
along the way, but you get
money in mutual funds is in
the point; you can get some issues with expense ratios
attention writing a book
south of 1 percent, it’s hard
about the evils of mutual
to argue that SMAs are
funds.
cheaper. Those costs, ulti­
The latest in the genre is
mately, affect performance,
“Mutual Funds Exposed,”
and while SMAs are trans­
written by Kenneth Kim and parent in what they hold,
William Nelson of EQIS
they’re not so clear when it
Capital Management,
comes to an investor decid­
where the cover carries the
ing which provider they
ominous reminder that
want to go with and how
“What you don’t know may likely they are to succeed
be hazardous to your
with that money manager.
wealth.”
There’s no real reason to
But investors are pretty
believe that SMA managers
well versed in the evils of
are inherently better than
mutual funds. Funds can be fund managers; in all
expensive, tax­inefficient,
realms of investing, guys
underperforming, opaque,
who consistently beat the
hard­to­understand invest­ market or their benchmark
ment vehicles that seldom
are rare.
perform as expected no
If the flaws and perils of
matter the market condi­
using investment vehicles
tions.
really bother you, the good
Most investors know that, news is that you can do it on
and they should.
your own without funds,
What they don’t know —
SMAs or the rest.
and what could be hazard­
The problem there —
ous to their wealth — is that despite the people shouting
pretty much everyone writ­ on chat boards how great
ing a book saying how hor­
their results are — is that
rible funds are has an ax to
while it is easier to pick one
grind, and you are just as
stock than it is to select a
likely to end up on the
mutual fund (at least when
wrong side of the cutting
it comes to knowing what
blade betting with them as
you are getting and why you
you do sticking with mutual are buying it) it’s easier to
funds.
pick a fund than to manage
For proof, let’s consider
a portfolio of stocks.
the substance and sugges­
In the end, investors
tion of “Mutual Funds Ex­
should remember that mu­
posed.”
tual funds were created to
In an interview, Kim
provide professional man­
noted that the book doesn’t agement and diversification
really break new ground in
conveniently and at a rea­
suggesting that funds are
sonable price.
flawed vehicles, but rather
If you can do it yourself
that it aggregates the charg­ and don’t need manage­
es together in one place and ment, then you don’t need
updates the arguments
funds (or perhaps you will
against funds.
augment your stock portfo­
Even a staunch fund
lio with a few low­cost in­
supporter can’t deny what’s dex funds for diversifica­
there.
tion), and you really don’t
Investors in conventional need books telling you how
mutual funds can be hit
bad funds are.
with a tax bill even if they
If you need help and
have lost money holding the diversification, decide
fund, fund investors wind
which structure and man­
up sharing costs with new
agement form works best
investors — so that a rush of for you, then expose your­
new money by others can
self to managers who you
reduce the profitability,
believe can help you reach
funds often take strategies
your goals.
that deliver less­than­stellar
Every strategy has flaws,
returns.
but finding a comfortable
But what comes next —
way to invest — even if it’s
the book’s “simple, straight­ not perfect — is better than
forward alternative” to
not investing while you
mutual funds — is “sepa­
hope some next big thing
rately managed accounts,”
will give you investment
which effectively is a pri­
perfection.
vately managed portfolio
Chuck Jaffe is senior columnist for
MarketWatch. He can be reached
where an investor (or their
at cjaffe@marketwatch.com or at
financial adviser) hires a
P.O. Box 70, Cohasset,
money manager to run a
MA 02025­0070.
portfolio.
Copyright 2015, MarketWatch
Your Funds
Funds reinforce their defenses
Bloomberg News
As Larry Fink predicts
bouts of volatility in bond
markets in the coming
years, his firm is leading a
push among mutual­fund
firms to reinforce their
defenses. Fink’s BlackRock
has increased the amount
its mutual funds can collec­
tively borrow to meet with­
drawals to $2.1 billion as of
November from $500 mil­
lion in early 2013, regulato­
ry filings show. BlackRock
and other funds are boost­
ing credit lines, an emer­
gency tool used to bridge
short­term funding gaps
that can occur when many
investors sell a fund at the
same time, after investment
banks reduced trading in
response to new legislation.
Fund Tracker
Weekly spotlight on mutual fund performance
Winners and losers: A mutual­fund scorecard
Fund Wkly % YTD %
obj return return
Biggest funds
American Funds A AmcpA p
American Funds A AMutlA p
American Funds A BalA p
American Funds A BondA p
American Funds A CapIBA p
American Funds A CapWGA p
American Funds A FdInvA p
American Funds A GwthA p
American Funds A IncoA p
American Funds A ICAA p
American Funds A N PerA p
American Funds A SmCpA p
American Funds A WshA p
Artisan Funds Intl
BlackRock Instl StrIncoOpp
BlackRock Instl EquityDv
BlackRock Instl GlbAlloc r
Dimensional Fds EmMCrEq
Dimensional Fds EmMktV
Dimensional Fds USLgVa
Dodge&Cox Balanced
Dodge&Cox Income
Dodge&Cox IntlStk
Dodge&Cox Stock
DoubleLine Funds TRBd I
FPA Funds FPACres
Fidelity Freedom FF2020K
Fidelity Freedom FF2030K
Fidelity Invest Balanc
Fidelity Invest Contra
Fidelity Invest GroCo
Fidelity Invest LowP r
Fidelity Invest Puritn
Fidelity Invest TotalBd
Fidelity Spart Adv 500IdxAdv
Fidelity Spart Adv TotMktAd r
Frank/Temp Frnk A IncomA p
Frank/Tmp Frnk Adv GlbBdAdv
Harbor Funds CapApInst
Harbor Funds Intl r
Loomis Sayles LSBondI
MFS Funds I ValueI
Metro West Fds TotRtBdI
Oakmark Funds I EqtyInc r
Oakmark Funds I Intl
Oakmark Funds I Oakmark
Oppenheimer Y DevMktY
PIMCO Instl PIMS AllAsset
PIMCO Instl PIMS TotRt
PIMCO Funds Instl Income
Price Funds BlChip
Price Funds CapApp
Price Funds EqInc
Price Funds EqIndex
Price Funds Growth
Price Funds MidCap
Price Funds N Horiz
Price Funds N Inc
Price Funds Ret2020
Price Funds Ret2030
Price Funds Value
Schwab Funds S&P Sel
Vanguard Admiral 500Adml
Vanguard Admiral GNMA Ad
Vanguard Admiral HlthCr
Vanguard Admiral ITAdml
Vanguard Admiral ITGrAdm
Vanguard Admiral LtdTrAd
Vanguard Admiral MCpAdml
Vanguard Admiral PrmCap r
Vanguard Admiral STIGrAd
Vanguard Admiral SmCAdm
Vanguard Admiral TtlBAdml
Vanguard Admiral WellslAdm
Vanguard Admiral WelltnAdm
Vanguard Admiral WdsrIIAd
Vanguard Fds TotIntBInv
Vanguard Fds DivdGro
Vanguard Fds STAR
Vanguard Fds TgtRe2015
Vanguard Fds TgRe2020
Vanguard Fds TgtRe2025
Vanguard Fds TgRe2030
Vanguard Fds TgtRe2035
Vanguard Fds TgtRe2040
Vanguard Fds TgtRe2045
Vanguard Idx Fds TotlIntl
XC
LV
BL
IB
BL
GL
LC
LG
BL
LC
GL
GL
LC
IL
GT
EI
MP
EM
EM
LV
BL
IB
IL
LV
MT
MP
MP
MP
BL
LG
XG
MC
BL
IB
SP
XC
BL
WB
LG
IL
GT
LC
IB
BL
IL
LC
EM
MP
IB
GT
LG
BL
EI
SP
LG
MG
SG
IB
MP
MP
LV
SP
SP
MT
HB
IM
IB
SM
MC
LC
SB
SC
IB
BL
BL
LV
WB
EI
BL
MP
MP
MP
MP
MP
MP
MP
IL
+3.4
+2.3
+1.7
­0.2
+1.8
+3.0
+3.1
+3.8
+1.7
+2.9
+3.1
+2.3
+2.7
+2.4
+0.5
+2.5
+1.8
+3.1
+2.6
+3.1
+1.7
­0.1
+3.2
+2.5
NA
+1.5
+1.8
+2.6
+2.2
+3.8
+4.4
+2.3
+2.4
+0.1
+3.0
+3.0
+1.3
+1.6
+4.6
+2.2
­0.3
+2.0
­0.1
+1.8
+1.4
+2.9
+3.8
NA
+0.3
NA
+4.7
+1.7
+2.3
+3.0
+4.9
+2.8
+4.0
­0.1
+1.9
+2.4
+2.7
+3.0
+3.0
0.0
+2.3
­0.2
­0.4
0.0
+3.1
+3.7
­0.2
+2.9
­0.2
+0.7
+1.6
+2.9
+0.5
+2.6
+1.8
+1.3
+1.6
+1.8
+2.0
+2.3
+2.5
+2.4
+2.1
+0.5
+0.1
+0.4
+1.5
+1.6
+1.7
­0.1
+0.5
+1.2
+0.5
+1.3
+0.1
­0.1
+2.6
+0.8
­1.3
+0.9
+3.2
+2.1
­2.0
­0.8
+0.9
+1.4
­1.6
NA
­0.4
+0.7
+0.4
+0.2
+0.4
+1.2
­1.0
+0.4
+1.5
­0.3
­0.3
0.0
+1.5
+0.7
+0.4
­0.3
­1.0
+1.3
­1.1
­0.1
­1.8
+2.1
NA
+2.1
NA
+1.4
+0.3
­1.5
­0.3
+1.3
­0.1
+0.2
+1.5
+0.7
+0.7
­0.8
­0.3
­0.3
+0.4
+4.2
+1.1
+1.7
+0.6
­0.1
+1.2
+0.6
­0.7
+1.6
+1.2
+0.6
­1.0
+1.6
+0.8
+0.7
+0.8
+0.7
+0.6
+0.5
+0.4
+0.3
+0.3
+1.0
5­yr %
return
+15.7
+14.2
+12.3
+4.5
+9.6
+10.1
+13.8
+14.1
+11.6
+13.9
+11.4
+11.6
+15.2
+10.5
+5.6
+13.2
+6.9
+3.9
+0.9
+16.7
+12.6
+5.1
+8.8
+15.3
NS
+10.3
+8.7
+9.9
+11.9
+15.6
+18.7
+15.4
+12.0
+5.3
+15.8
+16.0
+9.4
+6.2
+15.5
+6.5
+8.1
+14.5
+6.7
+9.7
+9.8
+16.3
+6.7
NA
+5.2
NA
+17.9
+13.2
+13.3
+15.5
+17.1
+17.7
+21.7
+4.5
+10.6
+12.0
+16.1
+15.7
+15.8
+4.2
+20.8
+4.8
+6.2
+2.1
+17.2
+17.1
+2.8
+16.9
+4.4
+9.8
+11.6
+14.1
NS
+15.2
+10.4
+9.2
+10.0
+10.6
+11.1
+11.7
+12.0
+12.0
+5.0
XC
SP
XC
Vanguard Idx Fds TotStk
Vanguard Instl Fds InstIdx
Vanguard Instl Fds InsTStPlus
Best performers
Direxion Fds NatRBull2X
Voya Funds Cl A RussiaA p
ProFunds Inv Cl InternetUlt
ProFunds Inv Cl UltEmMkt
ProFunds Inv Cl UltNasd100
Rydex Dynamic NasdStrH
Direxion Fds EmgMBull p
ProFunds Inv Cl PrecMetal
Direxion Fds LatAmBull
RidgeWorth Funds AggrGrI
ProFunds Inv Cl BiotechUlt
ProFunds Inv Cl Oil&Gas
Waddell & Reed Adv EnergyA t
ProFunds Inv Cl UltraJapan
Firsthand Funds TechOppt r
ProFunds Inv Cl UltLatinAm
Ivy Funds EnergyA t
ProFunds Inv Cl UltMidCap
Price Funds GlbTech
ICON Fds Energy S
Baron Funds Energy
ProFunds Inv Cl UltSmCap
RS Funds TechnolA
Berkshire Funds Focus
ProFunds Inv Cl UltBull
Rydex Dynamic S&P5 2xH p
Oppenheimer A StlpthAlpha
Ivy Funds GlNatRsA p
Jacob Funds USSmCG I
Fidelity Selects NatRes r
Worst performers
ProFunds Inv Cl UltShNq100
Rydex Dynamic InvNasdSt H
Rydex Dynamic InvSP5St H
ProFunds Inv Cl UltBear
Hussman Funds StrIntlEq
Rydex Investor InvNasdInvs
Comstock Partners CapVlA
Leuthold Funds GrizzlyShrt
Rydex H Class InvRusSt
ProFunds Inv Cl Bear
Rydex Investor InvS&P5St
Federated A PrudBear p
Hussman Funds StrGrowth
GAMCO Funds MathrAAA
Amer Century Inv IntlBnd
Frank/Temp Frnk A GoldPrM A
Columbia Cl I,T&G AbRtCurIn I
Laudus Funds IntGvFxInst
Federated A IntlBndA
Invesco Funds A GoldPrec p
Dimensional Fds AsiaPcSCp
Aegis Funds HighYield
361 Funds GblMgdFut
Tocqueville Fds Gold t
Price Funds IntlBond
Forum Funds MrHrdCur
Franklin Templ FTHrdC p
Dimensional Fds SelHdGFxd
Invesco Funds A EuroSmCo p
Touchstone Family IntFxd Inst
+3.0
+3.0
+3.0
­0.3 +15.9
­0.3 +15.8
­0.3 +16.1
Fund Wkly % YTD %
obj return return
SE
EM
SQ
SQ
SQ
SQ
SQ
SQ
SQ
XG
SQ
SQ
NR
SQ
TK
SQ
NR
SQ
TK
NR
NR
SQ
TK
XG
SQ
SQ
NR
NR
SG
NR
5­yr %
return
+10.7 ­5.7
­1.5
+10.4 +11.3
­6.6
+10.2 +0.2 +28.7
+10.2 +9.9
­5.2
+9.4 +1.7 +37.2
+9.3 +1.7 +37.3
+8.1 +7.2
­3.9
+7.9 +19.2 ­20.3
+7.8 +1.0 ­15.9
+7.6 +1.0 +15.2
+7.4 +8.0 +44.2
+7.3 ­5.1 +7.8
+7.0 ­2.6 +4.3
+6.9 +0.3 +12.5
+6.8 +2.6 +15.5
+6.6 ­0.5 ­17.1
+6.4 ­3.0 +4.2
+6.4 +0.2 +28.3
+6.3 +0.6 +20.9
+6.3 ­5.4 +2.3
+6.1 ­4.5
NS
+6.0 ­2.9 +24.9
+6.0 +0.2 +15.9
+6.0 +1.1 +20.2
+5.9 ­0.9 +26.8
+5.9 ­0.8 +27.3
+5.8 ­2.2
NS
+5.7 ­3.1
­3.2
+5.7 +5.0 +2.3
+5.7 ­1.1 +3.7
Fund Wkly % YTD %
obj return return
SQ
SQ
SQ
SQ
IL
SQ
SQ
SQ
SQ
SQ
SQ
SQ
SQ
SQ
WB
AU
MP
WB
WB
AU
PR
HC
SE
AU
WB
WB
WB
WB
EU
WB
5­yr %
return
­8.8 ­2.6 ­38.1
­8.7 ­2.4 ­37.9
­5.9
0.0 ­32.2
­5.8 +0.3 ­32.6
­4.5 ­5.8
­2.2
­4.4 ­1.2 ­20.1
­3.7 +0.1 ­18.6
­3.3 +2.5 ­16.8
­3.0 +1.0 ­19.1
­3.0
0.0 ­17.2
­2.9 +0.1 ­16.8
­2.6
0.0 ­16.3
­2.2 +2.1
­5.6
­2.1 ­0.4
­7.7
­1.9 ­2.4
­0.2
­1.8 +9.8 ­12.6
­1.8 +12.5 +2.5
­1.6 ­1.3
­0.6
­1.5 ­1.4
­0.3
­1.4 +11.1
­9.1
­1.4 ­1.8 +3.6
­1.4 ­2.2
­2.1
­1.4 ­2.6
NS
­1.4 +11.1
­7.3
­1.3 ­1.3 +0.7
­1.3 ­5.1
­1.7
­1.3 ­1.7
­0.3
­1.3 ­0.8 +1.2
­1.2 ­4.0 +10.2
­1.2 ­1.1 +3.4
Footnotes: e: Ex capital­gains distribution. f: Previous day{rsquo}s
quote. n or nl: No upfront sales charge. p: Fund assets are used to
pay for distribution costs. r: redemption fee or contingent deferred
sales load may apply. s: Stock dividend or split. t: Both p and r. x: Ex
cash dividend. NE: Data in question. NS: Fund did not exist at the
start date. NA: No information available.
Key to abbreviations and footnotes:
Fund objectives: AB: Long­term top­grade corporate and govern­
ment bonds. AU: Gold oriented. BL: Balanced. EI: Equity income.
EM: Emerging markets. EU: European region. GL: Global (includes
U.S.). GM: General municipal bond. GT: General taxable bond. HB:
Health and biotech. HC: High­yield taxable bond. HM: High­yield
municipal bond. IB: Intermediate­term investment­grade corporate
bond. IG: Intermediate­term Treasury/government debt. IL:
International (outside U.S.). IM: Intermediate­term municipal bond.
LC: Large­cap core. LG: Large­cap growth. LT: Latin American. LU:
Long­term Treasury/government debt. LV: Large­cap value. MC:
Mid­cap core. MG: Mid­cap growth. MP: Mixed portfolio (stocks and
bonds). MT: Mortgage. MV: Mid­cap value. NM: Insured municipal
bond. NR: Natural resources. PR: Pacific region. SB: Short­term
investment­grade corporate bond. SC: Small­cap core. SE: Sector
(specific industries). SG: Small­cap growth. SM: Short­term munici­
pal debt. SP: S&P 500. SQ: Specialty diversified equity. SS: Single­
state municipal debt. SU: Short­term Treasury/government debt.
SV: Small­cap value. TK: Science and technology. UN: Unclassified.
UT: Utility. WB: World bond. XC: Multi­cap core. XG: Multi­cap
growth. XV: Multi­cap value
5­year % return: Annualized performance over the past five years.
Top 5 mutual funds by objective, year­to­date % return
Emerging markets
Voya Funds Cl A
Virtus Funds I
Columbia Class Z
Price Funds
WM Blair Fds Inst
RussiaA p
EmMktI
EmgMkt r
InstEmEq
EmMkGrI r
Equity income
Federated Instl
City Nat Rochdale
Invesco Funds A
Columbia Class A
Paydenfunds
StrValDvIS
Div&Inc N
Utilities p
DivOpptyA
ValLdrs
Health | biotech
Rydex Investor
Fidelity Advisor A
Fidelity Selects
Price Funds
Frank/Temp Frnk A
Biotech
Biotech A
Biotch
HlthSci
BioDisA p
Global
Lazard Instl
Hartford Fds Y
Virtus Funds A
Vanguard Fds
Deutsche Trust
GblInfra I
GblEqInco
GlbOppA
GblMnV Inv
WorldDiv
IntlValue
IntValue I
IntlGrw I
Intl
IntlEq
Large­cap core
Fidelity Invest
BMO Funds
Eaton Vance A
Virtus Funds A
Vanguard Admiral
Mid­cap core
+11.3
+5.3
+5.1
+4.8
+4.8
Wright Funds
Davenport Funds
Eaton Vance I
Scout Funds
Lazard Open
YTD %
return
Small­cap core
+2.7
+2.3
+2.1
+1.7
+1.6
GoldmanSachsInst
Touchstone Family
Allianz Funds C
Invesco Funds A
JPMorgan Select
YTD %
return
+6.3
+6.2
+6.2
+5.5
+5.3
StrDvIn
LowVolEq I
DivBldrA
GrIncA
PrmCap r
Dreyfus
Center Coast
Fidelity Invest
Oppenheimer A
Fidelity Selects
Pacific region
+5.2
+2.5
+2.5
+2.1
+2.0
Eaton Vance A
Frank/TempFrnkA
Matthews Asian
Columbia Class A
EuroPac Funds
+4.0
+3.7
+3.4
+2.6
+2.6
YTD %
return
SlBlCh
EqtyOpps
AtlSMID
MidCap r
USMidC O
SmCapEqty
SCCore Inst
Opport
SmallC p
SmCap
NatResA
MLPFoc I
GlbCmdty r
Income A
NatRes r
YTD %
return
Gold oriented
+1.8
+1.6
+1.5
+1.2
+1.2
OCM Funds
Amer Century Inv
Fidelity Selects
GAMCO Funds
US Global Investors
+0.8
+0.8
+0.5
+0.5
­0.1
YTD %
return
­0.5
­0.7
­0.7
­0.8
­1.1
YTD %
return
GrIndia t
IndiaGrA p
IndiaInv r
GrChinaA
AsiaSmCoA
Science | technology
Firsthand Funds
USAA Group
DWS Invest A
Matthews Asian
Fidelity Selects
+1.3
+0.9
+0.6
+0.6
+0.4
YTD %
return
Natural resources
YTD %
return
YTD %
return
International
EuroPac Funds
Thornburg Fds
John Hancock Fds
Artisan Funds
Del­Pooled Trust
YTD %
return
TechOppt r
SciTech
CommA p
AsiaSciTInv
Wireless
GoldInv t
GlGold
Gold r
GoldAAA
Gld&Mtls
+9.4
+8.7
+8.2
+5.5
+5.4
YTD %
return
+2.6
+2.0
+1.9
+1.8
+1.5
YTD %
return
Sector
NewAlt
AQR Funds
Rydex Investor
Invest Managers
Fidelity Selects
MgdFutSt I
MgdFutStr
MgdFutSt I
DfAer
YTD %
return
Balanced
Perpetual t
StrTotRet r
CapIBA p
AACnA p
IncEq
Midas Funds
Hussman Funds
American Funds A
Putnam Funds A
Northern Funds
Intermediate bond
GMO Trust IV
Dimensional Fds
Vanguard Admiral
Harbor Funds
PIMCO Instl PIMS
CorePlusBd
ITExQual
ITBdAdml
Bond
TotRt
Long­term bond
LTBnd
LTGrAdml
ExtDurI
ExtDrGS4
CorpBd
Vanguard Idx Fds
Vanguard Admiral
Del Inv Instl
GuideStone Funds
Fidelity Invest
YTD %
return
Mortgage
+16.8
+16.5
+16.4
+15.7
+15.3
Legg Mason A
Victory Funds
Wright Funds
CRAQlInv
JPMorgan R Cl
+6.1
+4.0
+1.6
+1.3
+1.3
YTD %
return
+3.0
+2.5
+2.3
+2.2
+2.1
YTD %
return
+4.6
+4.0
+3.6
+3.4
+1.9
YTD %
return
Long­term U.S.
Vanguard Instl Fds
Wasatch
Vanguard Admiral
Fidelity Spartan
Price Funds
+5.7
+5.5
+4.6
+3.4
+2.9
ExDurTreas
USTryFd
LTsyAdml
SpLTTrAd r
USTLg
+9.8
+7.7
+6.4
+6.4
+6.0
YTD %
return
WAMtgBkA
FundFInc I
CurIn
MtgBckd
+1.3
+1.1
+1.1
+1.0
+1.0
COPING
WITH DEBT
ON A
REDUCED
INCOME
Investing
Scott Burns
Syndicated columnist
Q: My
wife and I
were dis­
cussing
paying off
major debt.
This would
include our
mortgage
($100,000), a home­im­
provement loan ($50,000)
and a vehicle ($20,000).
The only way we could
do this is through my re­
tirement Simplified Em­
ployee Pension (SEP). It is
currently valued at
$876,000. It is aggressive­
ly invested, about 80 per­
cent stocks, 20 percent
bonds. It is not a Roth, so
taxes would have to be
paid on whatever I with­
draw.
We are both 63, and I am
the only one employed
(self­employed), making
about $65,000 a year. My
income has been reduced
by half over the last two
years, and I am actually
withdrawing $2,000 a
month from the SEP to
take care of bills.
But it still is not enough
to keep ahead. Our credit­
card bills are about $300
per month, which we pay
off. Eliminating these three
monthly bills — the mort­
gage, home­improvement
loan and the car loan —
would cut our expenses by
$2,200 a month.
Here’s what has me
concerned: Our health
insurance is increasing to
$1,200 a month in Janu­
ary. This past year, I had to
withdraw $30,000 from
the SEP to pay bills and
taxes, not including the
$2,000 a month we are
already withdrawing.
What do you suggest? I
want to work until retire­
ment age (maybe longer),
but I am losing ground.
A: That’s a heavy­duty
withdrawal rate —
$54,000 a year from an
$876,000 account. It fig­
ures to 6 percent, a rate
that is not sustainable.
Worse, when you need
to add high withdrawals to
your earned income just to
pay the bills at age 63, it’s
pretty clear that you are on
your way to a major finan­
cial crisis when you do
retire.
The good news is that
you have a lot more in
savings than most people.
Withdraw from your re­
tirement account at 4
percent, and you’ll have
nearly $3,000 a month to
supplement your Social
Security income.
You’ll need to look at the
estimates you get from
Social Security to see how
much you and your wife
will receive in benefits. But
that number — Social
Security plus about $3,000
a month from retirement
savings — is about the
amount you’ll have to
spend when you retire.
Here is a list of steps you
can take:
• Pay off the car loan. It
will have the largest im­
pact on cash flow, with the
least tax consequences.
• Refinance the home­
improvement loan into a
home equity line of credit
(HELOC). This will reduce
the interest rate and elimi­
nate principal repayment
for a period of time.
• Alternatively, refi­
nance the first mortgage
on a 30­year basis and roll
in the home­improvement
loan. The monthly pay­
ment on a $150,000 mort­
gage for 30 years at 4.5
percent is $760 a month,
far less than you are now
paying.
• Consider selling the
house and moving to a
lower­cost house or condo,
using your sales proceeds
to make certain that your
new mortgage debt is less
than your current debt.
Questions:
scott@scottburns.com
Copyright 2015,
Universal Press Syndicate