2012Jun25 Saving Enough?
Financial Planning: How is your emergency savings fund doing? Nearly half of Americans say they lack enough emergency savings to cover three months of expenses, according to a new survey from Bankrate.com. Still, Bankrate noted that a similar poll done in 2006 found that 61 percent of Americans lacked a three-month cushion. So the recent findings suggest that the financial crisis convinced more Americans of the importance of savings. “People got the message,” said Sheyna Steiner, who writes about investments for the site. There’s room for progress, though. The general rule of thumb is that you need a cushion of at least six months. But only a quarter have saved that much, about the same as a year ago. Meanwhile, nearly a third the people responding to the survey said they had no emergency savings, up from a quarter last year. That’s risky because savings are crucial to avoiding high-cost credit card debt when unexpected expenses arise. Demographics: In 1991, former MIT dean Lester Thurow wrote: "If one looks at the last 20 years, Japan would have to be considered the betting favorite to win the economy honors of owning the 21st century." It hasn't, and it likely won't. But 20 years ago, the view was nearly universal. Japan's economy was breathtaking -- rapid growth, innovation, and efficiency like no one had seen. From 1960 to 1990, real per-capital GDP grew by nearly 6%, double the rate of America's. What happened? You can write volumes of books analyzing Japan's decline (and some have), but one of the biggest contributors to its stagnation is simple: It got old. Dig through international demographic projections, and one thing becomes shockingly clear: The United States is in a much better position than nearly all other major economies. There are two key numbers to watch when looking at demographics: the percentage of the population that's of working age (15-64), and the percent likely to be in retirement (over 65). The U.S. Census Bureau has great demographic data for nearly every country in the world, with projections through the year 2050. Here's how things look today: 2012
Source: Census Bureau. Predictable. China has a young population teaming with potential workers. The U.S. is slightly behind. Old-world Europe is a bit grayer. Japan is the wrinkliest of the bunch. But where things get really interesting are projections of the year 2050: 2050
Source: Census Bureau. Everything changes. Though all countries age, within four decades the U.S. will likely have one of the lowest percentages of elderly citizens, and one of the highest rates of working-age bodies among large economies. China, meanwhile, will see its working-age population plunge and its elderly ranks soar -- an echo of its one-child policy. Europe falls deeper into age-based stagnation. Alas, Japan becomes the global equivalent of Boca Raton. Look around at commentary today. It's a predictable dose of tombstone preparation for the U.S. economy and trumpets hailing the arrival of China as the world's new superpower. Will we one day look back on these assumptions with the same amusement we now give Thurow's prediction for Japan? I wouldn't doubt it. "The trick is growing up without growing old," baseball great Casey Stengel once quipped. That's true for countries, too. Investing: The annals of investor behavior make for some pretty scary reading. Yet this story from the Wall Street Journal may take the cake. It is an article about the top-performing mutual fund of the decade and it shows with remarkable clarity how badly investors butcher their long-term returns. The article hits the premise right up front:
Meet the decade’s best-performing U.S. diversified stock mutual fund: Ken Heebner’s $3.7 billion CGM Focus Fund, which rose more than 18% annually and outpaced its closest rival by more than three percentage points. Too bad investors weren’t around to enjoy much of those gains. The typical CGM Focus shareholder lost 11% annually in the 10 years ending Nov. 30, according to investment research firm Morningstar Inc. It’s hard to know whether to laugh or cry. In a brutal decade, Mr. Heebner did a remarkable job, gaining 18% per year for his investors. The only investment acumen required to reap this 18% return was leaving the fund alone. Yet in the single best stock fund of the decade investors managed to misbehave and actually lose substantial amounts of money—11% annually. Think about an adaptive Dorsey, Wright Research model like DALI. As conditions change, it attempts to adapt by changing its holdings. Does it make sense to jump in and out of DALI depending on what happened last quarter or last year? Of course not. You either buy into the tactical approach or you don’t. Once you decide to buy into—presumably because you agree with the general premise—a managed mutual fund, a managed account, or an active index, for goodness sakes, leave it alone. In financial markets, overconfidence is the enemy of patience. Overconfidence is expensive; patience with managed products can be quite rewarding. In the example of the CGM Focus Fund, Mr. Heebner grew $10,000 into $61,444 over the course of the last ten years. Investors in the fund, compounding at -11% annually, turned $10,000 into $3,118. The difference of $58,326 is the dollar value of patience in black and white. —-this article originally appeared 1/6/2010. Unfortunately, human nature has not changed in the last two years! Investors still damage their returns with their impatience. Try not to be one of them! |
