FYI: As soon as the program becomes available for free, early tomorrow, I will link it.
Regards,
Ted
May 7, 2015
Dear WEALTHTRACK Subscriber,
Federal Reserve Chairwoman Janet Yellen caused a bit of a stir in an interview Wednesday when she commented that “equity market valuations at this point generally are quite high.”
It wasn’t exactly an “irrational exuberance” speech, a la Alan Greenspan in 1996, but pundits were quick to point out that his observation was about four years early, as the markets continued to rally until the March 2000 peak.
The market is expensive historically, based on several longer term measures including one of our favorites, the CAPE ratio, or Cyclically Adjusted Price Earnings ratio, created by frequent WEALTHTRACK guest, Nobel Prize winning economist Robert Shiller.
The CAPE, which is figured by taking the current price for the S&P 500, divided by the average of S&P earnings over the last ten years, adjusted for inflation, is currently around 27. That is well above its 20th century average of about 15.
Fed Chairman Yellen isn’t the only one concerned about stock market levels, professional investors are too.
According to a recent survey from State Street Global Advisors, of over 400 institutional investors worldwide, 63% of them increased their stock exposure over the last six months, but 53% wish they could decrease it and would if they had a more attractive alternative. Talk about conflicted!
Plus, 57% expect a market correction of between 10 and 20% in the next 12 months!
Normally investors could turn to bonds for income and protection, but with bond yields near record lows, they are no longer a viable option.
According to this week’s guest, Clifford Asness, both stocks and bonds are more expensive now than they have been in 90% of market history. Asness is Founder, Managing Principal and Chief Investment Officer at AQR Capital Management.
AQR stands for Applied Quantitative Research, which they use in a number of strategies.
Founded in 1998, AQR, now a global investment management firm, oversees more than 130 billion dollars in hedge funds, mutual funds and a diversified collection of investment strategies, from traditional long-only ones to multiple alternative approaches. I asked Asness how unusual it was for both stocks and bonds to be this expensive at the same time and what investors should be doing in response.
If you’d like to see the show before it airs, it is available to our PREMIUM subscribers right now. We also have an EXTRA interview with Asness, about his new venture with London Business School, available exclusively on our website.
If you have comments or questions, please connect with us via Facebook or Twitter.
Have a great weekend and make the week ahead a profitable and productive one.
Best Regards,
Consuelo

http://www.schwab.com/public/schwab/nn/articles/When-Should-You-Take-Social-Security
The amounts are so much higher when you wait, seems like a no-brainer if you can swing it from other resources and are unlikely to die soon.

Check out Junkster's post above about his friend.
Also, when computing when do take SS it isn't only what is mentioned in their article.
When you delay taking SS; you have to take into consideration the opportunity cost of using your $ for expenses.
So, using the schwab example, if a single person could get $2,000/mo or $24K/year from SS but use their money the interest or capital appreciation would have to be added to the years to break even.
e.g. 10% interest = 2,400 x 5 year delay = 12,000
Divide the 12,000 by the SS they would get per month at 67 for the number of months. Let's say 2,600. Then you have to add 4.6 months to the break even point.
Other factors you have to take into account:
-Opportunity cost above - compounding of int/cap gains, add more time for that? .
-401K mandatory withdrawals, if you take SS later + you have 401K withdrawals you may pay more taxes than taking SS early + the 401K because your tax base would be lower- add more time for that?
e.g. 600/month x 12 = 7,200 higher base x tax rate 20% =1,400/2600 = .5 month every year 15? = 7.5 months.
4.6 opportunity cost
.4 compounding interest
7.5 extra taxes
12.5 months.
So deferring may not be financially advisable. In the Schwab example the break even is between 15-16 years - Between 77 and 78
If you want to do the calculations I'd help in reviewing them for you.

Good Morning @Ted
I'm hoping the big money finds the markets oversold at this time, too. I don't choose to give back too much of the YTD gains at this house.
Take care,
Catch

Are you sure Social Security is taxed in Mass? From Mass.gov:

21. Are Social Security benefits taxable in Massachusetts? Is the Medicare tax withheld from my Social Security benefits deductible on my return?
Massachusetts does not tax benefits received from U.S. Social Security, Railroad Retirement (Tier I and II), Public Welfare assistance, Veterans' Administration payments or workers' compensation. Any portion of such income, which may be taxed under federal law, is not subject to Massachusetts's income tax.

Regarding the parts of Medicare - A is hospitalization, 100% covered (once you begin SS benefits or apply if you don't claim SS benefits by age 65); B is doctor services, typically 80% covered, and you pay a premium (currently $104/mo). That premium is inflation adjusted and may be higher for high income retirees. The premium also goes up, permanently, if you don't start part B within roughly a year of eligibility (unless you're still working w/group coverage).
D is for 'D'rugs. Since these are private insurance plans, their premiums vary, but are still subject to penalty and high income premiums like part B. And since these are nonstandardized, each insurer has a different formulary. Like employer plans, those are subject to change with little notice.
C is Medicare Advantage. Like the group PPO/HMO plans you're familiar with, they (usually) cover everything (including drugs) but have their own networks of physicians and hospitals. So it replaces A/B/D if you use it.
You always pay your Part B premium to Medicare (even if you take Medicare Advantage instead of vanilla Medicare parts A/B/D). Some Medicare Advantage plans charge extra (and provide extra benefits), some do not. The networks are the major drawback; IMHO the major plusses are a cap on out of pocket expenses and no additional part D (drug) premium. (Under "original" medicare, you'd need a Medicare Supplement - Medigap - plan for an out-of-pocket cap.)
Medicare has standardized Medicare Supplemental Plans, so what one insurer offers must be the same as what another insurer offers for the same plan. These plans go by letters - too complicated to go into here. Since new Medigap plans (starting in 2020) cannot cover all your deductibles (new law), Medigap plans C and F will be changing, though no one knows exactly how yet. To that extent, MJG is correct, you cannot know the future exactly. But you can still have a pretty good idea of what's coming down the (Mass) Pike.
Good luck.

FYI:
Regards,
Ted
WSJ Slant:
http://www.wsj.com/articles/u-s-stock-futures-rise-1430914380
Bloomberg Slant:
http://www.bloomberg.com/news/articles/2015-05-05/crude-extends-climb-as-gains-hit-bond-market-kiwi-sinks-on-jobs
Reuters Slant:
http://www.reuters.com/article/2015/05/06/us-markets-stocks-idUSKBN0NR17320150506
MarketWatch Slant:
http://www.marketwatch.com/story/us-stocks-set-for-rebound-with-jobs-yellen-in-view-2015-05-06/print
WSJ Markets At A Glance:
http://markets.wsj.com/us
Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-tracker
Current Futures:
http://finviz.com/futures.ashx

.........well, not much in happy land in many places during the recent days........the last week or so with softness in equity and bonds. 'Course, such a broad statement does imply that there are not areas that are somewhat happy; but not unlike a young person or an adult who sometimes states that they are going to run away from home.........likely from having a bad day, etc. :)..........even "investors" have periods when they want to "run away from investments", yes?
Well, your house (investments) is also likely getting its "clock cleaned" from recent market actions.
Some equity market areas during the past month had about 8% down moves and then flattened for a short period of time. But, this has reversed again. India being an example of a big run in the last 12 months +, then down about 8%, but further down May 6 dropping another 2.5% or so. Aussieland also found a large drop (>2%), reportedly due in part to poor earnings in the banking sector.
All investor returns will be different, of course; but the consideration is in place for this house to reduce equity holdings today (May 6) to protect very pleasing returns so far this year from investments in particular in HEDJ. Some healthcare may also be reduced; although the gains from these holdings has been from a period of years and not months.
Ya, I know; don't be a trader or time the markets. I'll have to name this as intuition.
Broad drawdowns will likely not be more than 10%, yes? Or you best guess.
At times, I recall a portion of information displayed upon the "old" hometown movie theatre screen before the main movie............."Preview of coming attractions". Attempting to determine the "coming attractions related to investments".
Well, just some early morning (1 cup of coffee) jabber.
NOTE: this write was started and planned to be posted on May 5, but other schedules changed this.
Regards,
Catch

I can say that VWENX is my largest holding at just under $100,000, but that's because I've reinvested dividends for several years. As a result, the fund has grown to that amount coupled with capital gains of course. But I would never just drop $100,000 on one fund at this time. As I said, I'm a bit apprehensive given the current market valuations.

Reading between the lines, I see housing values taking a hit along this raising interest rate curve.
In a raising interest rate environment these 30 yr bonds (home loans) will put downward pressure on the value of homes just like they put downward pressure on the face value of a bond. Selling into this curve will cause you to take a hit on the bond value (home price).
So much for "home equity".
Owner financing may return as sellers choose to be the bank to the new borrower giving the buyer a sweeter deal while the seller gets a principal and interest payment to use as income and help offset capital loss on the bond.

Neither the best written nor the best read article. The underlined phrase is just part of the sentence. Notice that it is set off by commas. I'll emphasize the effect of that punctuation by replacing the commas with parentheses:

Of course, the best way to maximize Social Security is to delay claiming benefits until full retirement age (which is climbing gradually to 67) or beyond.

That is, the "or beyond" applies to "the best way to maximize SS" is to wait until FRA or beyond. The parenthetical remark simply clarifies what FRA is - it does not assert that FRA is rising beyond age 67.
The title is misleading, because actuarially speaking, benefits (on a constant dollar basis) are the same regardless of when you start taking them. They are not reduced if you start them at age 62. Of course, if you take them earlier, you're spreading them over more years, so the rate at which you receive your benefits is reduced. (There are ancillary benefits, like spousal payments that are indeed reduced if you claim before FRA.)
@Junkster - New medicare supplemental policies starting in 2020 will not cover 100% of what Medicare doesn't pay. (You're grandfathered in, but Dex is not.) Specifically, "Under the doc-fix law, Medigap plans will no longer cover the annual Part B deductible for new enrollees ($147 this year). That will mean changes for Medigap "C" and "F" plans, the two most popular plan choices and the only ones that cover Part B deductibles. Starting in 2020, seniors would have to pay it themselves. "
That's from M*: What the Medicare 'Doc Fix' Means for Your Pocketbook
It's actually rather debatable whether Medicare supplemental insurance is even worth it (given that part A is 100% covered without it). Here's a column suggesting that these policies are cash cows for insurers. He overstates his case, but the numbers seem sound. IMHO, the main virtue of these policies is for catastrophic insurance (i.e. they cap out-of-pocket expenses).

I wonder if the impact of 0-Care on people is forcing them in taking SS early?
Another thought is that by taking SS early, one does not have to use their tax deferred retirement savings, in the hope they will experience gains. In my calculations, if I take SS at FRA ,my break even age is 70 figuring the total amount received if I took it at 62.

Did you include COLA in your calculation? Remember, you will often receive COLA increases most years and they are cumulative. Also, this lower income may qualify you for programs that are income dependent.
The hardest nut seems to be covering healthcare costs yourself during these early retirement years prior to qualifying for Medicare at age 65.

I wonder if the impact of 0-Care on people is forcing them in taking SS early?
Another thought is that by taking SS early, one does not have to use their tax deferred retirement savings, in the hope they will experience gains. In my calculations, if I take SS at FRA ,my break even age is 70 figuring the total amount received if I took it at 62.

Thanks MSF and Vert for your summations of FPNIX. Is it also a short term bond fund in effect?

In effect it pretty much has been. Doesn't have to be, though. Two good things about Baird funds: They have low expenses, which I guess is uncontroversial, and they don't speculate on directions of interest rates, which I'd call a strength though others might differ. FPNIX will make interest rate calls. They've always erred on the side of conservatism (of capital) and I don't expect that to change given the FPA family, so if interest rates haven't risen considerably in the interim I'd imagine that FPNIX will continue acting like a short term bond fund.

bee, I *rarely* buy anything recommended by another as I like to do my own research/monitoring. But I must admit, much of the reason I had a good 2012 (better than the stock indexes and junk bonds) was entirely your doing. You were a vocal proponent of PONDX back then and I jumped aboard as it met my all my trendiness criteria. It was one smooth ride. So a belated thanks!

I believe CathyG...wherever she may be... was the first mentioned PONDX here at MFO. Investments work until they don't. This one has had some legs. Thanks to good management at Pimco (Dan Ivascyn).

As to your question the research on various tight stops on non volatile trending markets, open end junk bond funds in particular, and then when to reenter was given to me by a fellow poster here. He and I have been e-mailing back and forth on junk bonds for many years now. So not to sound like a ..., but wouldn't feel right sharing the fruits of his labor without his permission. The basics is when a heretofore strongly trending non volatile market declines a certain percentage from any new highs, there is a greater percentage that decline will continue further. I recall that methodolgy got me out of PONDX in 2013 with most of the early 2013 gains intact and it eventually went on to much further declines before stabilizing and rising again, albeit never as high as my exit point..

I'm not looking to get my kneecap bust so I'll stop you right there...thanks.

bee, I *rarely* buy anything recommended by another as I like to do my own research/monitoring. But I must admit, much of the reason I had a good 2012 (better than the stock indexes and junk bonds) was entirely your doing. You were a vocal proponent of PONDX back then and I jumped aboard as it met my all my trendiness criteria. It was one smooth ride. So a belated thanks!
As to your question the research on various tight stops on non volatile trending markets, open end junk bond funds in particular, and then when to reenter was given to me by a fellow poster here. He and I have been e-mailing back and forth on junk bonds for many years now. So not to sound like an ..., but wouldn't feel right sharing the fruits of his labor without his permission. The basics is when a heretofore strongly trending non volatile market declines a certain percentage from any new highs, there is a greater percentage that decline will continue further. I recall that methodolgy got me out of PONDX in 2013 with most of the early 2013 gains intact and it eventually went on to much further declines before stabilizing and rising again, albeit never as high as my exit point..

But then I am biased! Junk bond funds (PHYTX) are notable for their trend persistency and low volatility making them amenable to various trading methodologies using tight stops. Yes, I know 2008 was a disaster but the tight stop methodology would have kept you out of harm's way.

Comparing PHYTX to PONDX since Dec 2007 on a buy and hold basis the graph below shows PONDX produced similar returns with less than half the MAXDD. I would imagine tight stops would achieve greater upside gains while removing MAXDD entirely. Would you review with us the nuts and bolts of this strategy?

FYI: .–Warren Buffett‘s “Woodstock for Capitalists”, the annual meeting of his Berkshire Hathaway Inc., celebrated a major milestone this year: Mr. Buffett has now been at the helm of the conglomerate for 50 years.
Mr. Buffett played host to roughly 40,000 people at the company’s annual meeting Saturday, an event that swells the population of Mr. Buffett’s hometown by nearly 10% each year. Over the hours and hours of question-and-answer that are the hallmark of the meeting, Mr. Buffett and his vice chairman, Charlie Munger, fielded questions about investing and markets, Berkshire’s relationship with 3G Capital and its investments in International Business Machines Corp. and Coca-Cola Co.
MoneyBeat live-blogged the all-day event from Mr. Buffett’s first sip of cherry Coke to his last bite of See’s candy. Here’s how it all went down
Regards,
Ted
http://blogs.wsj.com/moneybeat/2015/05/02/live-analysis-the-2015-berkshire-hathaway-annual-meeting/tab/print/

From the research paper "Patient Capital Outperformance". I know the AQR paper which tries to downplay active share was highlighted in this months issue.....but I think this is worth checking out http://blog.alphaarchitect.com/2015/04/30/is-passive-perfect-high-active-share-long-term-investing-works-better/

The ole memory fails frequently these days but seems like the manager of the Prospector funds was associated/managed with T Rowe Price Capital Appreciation early in his career.

FYI: The author generally doesn't like the target-date funds strategy, though, because it’s “one-size-fits-all.” Target-date funds don’t speak to individual risk tolerance. The very fact that they are mechanical means that more savvy investors may miss out on opportunities to re-allocate capital depending on certain market or sector conditions.
Regards,
Ted
http://investorplace.com/2015/04/target-date-mutual-funds/print

Hi davidrmoran,
Thank you for making comment on my post.
At first brush, I'd trend to agree with you; but, the message in the newsletter goes beyond your comment. Here is what the newsletter has to say on how to pick a fund.
'Which Funds Should Be Considered "Undervalued?"
OK, I know what your next question is going to be. How exactly can one recognize funds that are made up of stocks that are predominantly undervalued?
First an admonition: As implied above, the term "undervalued" is a relative one and and even "experts" don't agree on how to assess it. And, the term shouldn't suggest or imply that big gains will lie immediately ahead, even when correctly assessed. (Many experts rely on a statistic called the P/E ratio, or price divided by earnings, to define abnormally high or low valuation; unfortunately, many stocks, and stock funds, with relatively low P/E's will continue to underperform, while, conversely, funds with extremely high P/E's can continue climbing even for years. Therefore, even though the statistic for any fund is readily available, such as on sites such as morningstar.com, I wouldn't recommend paying that much attention to it.)
Of course, the opposite is also true. What is "overvalued" isn't always clear either and such funds don't always immediately start to underperform (although my research suggests that when measured as I will present below, they most likely will within a year or two). In fact, I have been saying that most types of funds have been overvalued since late Oct. 2013. Since then, most of these funds have continued to move ahead, although they appear to have slowed down somewhat since the start of this year.
Thus, while the concepts of over/undervaluation are frequently debated by the experts, and there is no absolute "yardstick," I will now give you a guideline that I use to help shape my own investment decisions.
Suppose you own a fund that has returned cumulatively in excess of more than 25% of what might have expected over the past few years. More specifically, stocks, on average, tend to return 9 to 10% a year. For simplicity, let's call that a cumulative return of 50% over 5 years. So if your fund returns 25% more than that, it would return 75% over 5 years. This, then, comes out to an average return of 15% a year.
Unlike a fund, when you own an individual stock, it can literally go to the moon. Once again, take Apple stock. Over the last 5 years, it has returned about 150%, or 30% per year. But over the last 10 years, it did even better - 38% a year, or 380% cumulatively. In other words, there may be nearly no limit to how far up any one stock might go. Of course, a badly performing stock might continue underperforming, inflicting huge losses, perhaps until the company goes out of business or goes bankrupt. Enron stock, a darling of Wall Street from 1996 to 2001, fell from over $90 per share to less than $1 before becoming totally worthless.
But with a mutual fund/ETF, the ride should be smoother since the fund hopefully invests in many, many stocks, lessening the impact of any one extreme success or failure. Since we can not know the future for sure, let's just say while, on average, 50% total gains over 5 years for a fund are close to the normal, 75% gains or more are approaching rarified air. A fund with the former result might be considered to have a "fair" or appropriate valuation; one with the latter is probably "overvalued," or approaching what I would consider being overvalued in the near future.
My research has shown that using such a 15% "yardstick," stretched out over time, can be a useful marker of likely overvaluation. Once most funds surpass it based on a 5 year period, one is typically better off investing at least some portion of a portfolio elsewhere, specifically in one or more funds that instead appear "undervalued."
We might think of an "undervalued" category or specific fund as one where its stocks have performed significantly worse than an annualized return of 9-10%. In fact, if the average fund in its category is currently showing only a 5% annualized return over the last 5 years, it may be underperforming an "average" performing fund by 25% cumulatively and an overvalued fund by at least 50% cumulatively (75% minus 25%).
For the short term, the "overvalued" fund, although probably not recognized as such by most investors, might appear the wiser choice. But for the longer term, the undervalued fund would appear to have much more potential for future gains.'
Thanks again for your comment. As can be gained for reading the above, I think you'll now agree that the newsletter's message goes well beyond just picking a value fund.
I wish all ... "Good Investing."
Old_Skeet