Friday Financial Five—September 27th, 2013

Friday, September 27, 2013

Dan Forbes, GoLocalWorcester Financial Expert

Congress’s possible hiatus

It’s coming down to the final hour, as Congress must pass a regular budget or a continuing resolution by the first of October or risk a government shutdown. The Affordable Care Act and general spending are being held hostage in the process. While it’s safe to assume there will once again be a last minute resolution, budget issues will continue to plague our leadership until drastic and permanent decisions are agreed upon.

Banks continue to pay through the nose

The last week saw two banking behemoths coming to the table with big dollars to clear up the ongoing mortgage mess. Citigroup, the nation’s third biggest bank, is already on the hook with Fannie Mae for roughly a billion dollars. On Wednesday, they agreed to pay Freddie Mac almost $400. This coincides with word that J.P. Morgan is discussing a nearly $11 billion settlement. It’s further punishment for the banks, in what is seemingly an endless string of mortgage settlements. But it seems feasible that in some cases, these banks sold mortgages to Fannie and Freddie that met government imposed guidelines and the mortgages simply went sour in the crisis.

Factors driving the market until 2014

With tapering seemingly no longer an issue, other variables will drive market performance through year end. The bond market should see some stability, with interest rates trending down and driving bond values up recently. Unemployment and inflation seem to be stabilizing. Business spending has been on the upswing which is a positive. The main factors to look out for will be any drastic changes resulting from the current budget showdown and any continued unrest overseas.

Retirement plans without a match

An idea gaining steam is bypassing contributions to a retirement plans that don’t provide a company match. Plans that have a dollar for dollar match provide an immediate 100 percent return on contributed money. Take away the match, as many employers have done to reduce expenses, and the idea is now less attractive. Yes, the contributions and investment gains are deferred from taxation, but many retirement plans are expensive and have limited investment selection. The money is also restricted in terms of accessing it in case of an emergency. While using a company retirement plan has traditionally been considered a no-brainer, the decision should be made on a case by case basis.

Mutual funds that close the door to new investment

An interesting phenomenon of the stock market run-up has been the closing of several popular mutual funds to new investors. While this may be a sign that money inflows are threatening the investment strategy of the fund, it can also be used as a gimmick to attract new money before the upcoming “closing” of the fund. Closed funds may shut off all additional new money or simply limit new investment to fund holders as of a certain date. The announcement that a fund is closing, a small cap fund that may be getting too large for example, should prompt an investor to review the fund while evaluating comparable open options.

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].

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