Friday Financial Five-October 10, 2014

Friday, October 10, 2014

Dan Forbes, GoLocalProv MINDSETTER™

The market roller coaster continues

Market volatility continues to be the norm, with yesterday’s Dow loss being the fourth over 300 points this year. Market gyrations have been accompanied by a spate of relatively good news in the economy, reinforcing that the two don’t necessarily move in lock-step. Thanks to healthy growth in tax receipts, the CBO revised the federal budget deficit to $486 billion, down from the initial estimate of $680 billion. Unemployment is below 6 percent and initial jobless claims remained below 300,000 for the fourth straight week. Most importantly, the Federal Reserve may consider scrapping its forward guidance, which continues to wreak havoc on the markets as investors attempt to read the tea leaves.

Pensions and hedge fund holdings

With the nation’s largest pension group ditching all investments in hedge funds, there’s plenty of ammunition for the anti-hedge fund crowd. It’s reasonable to cite exorbitant fees, lack of transparency or lack of liquidity as viable reasons for avoiding this investment type. But Calpers (the California pension system) and others would overlook those factors if the investments delivered returns and that has not been the case. Moving away from hedge funds isn’t necessarily a victory for “Main Street”. Those monies need to go somewhere, with one likely target being alternative mutual fund offerings that attempt to behave like hedge funds without the expense.

Supreme Court to allow 401(k) lawsuit about fees

The Supreme Court accepted an appeal from workers of Edison International, who argued that several holdings in their 401(k) plan were unsuitable. With urging from the Obama administration, the court agreed to hear the argument that the company can be held responsible for holding excessively expensive options within a retirement plan. In this particular case, the workers feel wronged on two fronts. They contend that the share type offered in the plan was more expensive than necessary. They also believe that the share type allowed for reduced administrative costs to the company. A ruling is expected by late June of next year.

Social Security COLA should rise in 2015

According to The Senior Citizens League (TSCL), Social Security benefits should rise by 1.7% in 2015. The group uses the latest CPI figures to calculate the benefit increase, which should be confirmed by the Social Security department by the end of the month. The TSCL and others contend that the CPI may not truly be representative of the cost of living increases seniors are being subjected to, especially in the areas of housing and health care. There have been five years of relatively flat increases, and the possibility of using a “chained” CPI might mean even smaller federal benefit increases in the future.

Joan Rivers is good to her pets

It’s the norm to highlight estate plans gone awry, but there should also be credit given when it’s done properly. Joan Rivers passed most of her the roughly $150 million in her estate to her only daughter, Melissa, and those who used to date Melissa probably took notice of this. Her estate also reportedly passed money on for the caretaking of her four dogs. Whether you agree with that or not, it reinforces that estate planning is simply a means to pass assets to the person (or pets) when and how you want.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].