My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Sideways to downward bias had the markets in a retreating mode. Our Trend Tracking Index (TTI) for domestic funds moved lower but still sits +3.75% above its long-term trend line (red) as the chart below shows:

The international index eased up as well and currently sits +7.89% above its own trend line, as you can see below:

In my advisor practice, a client brought up the question as to whether he could save some money by referring a relative or friend and have that person’s assets to be considered when management fees are calculated.

Here’s how it works. All fee-based investment advisors have a sliding fee schedule for their clients. The higher your portfolio value, the smaller the management fee.

For example, let’s say your managed portfolio has a value of $80k and you are referring a family member with a portfolio value of $40k. In my practice, we have fee break points for accounts under $50k, under $100k, under $250k and so on.

In the above example, you, with the $80k portfolio, would benefit greatly by referring your friend with a $40k portfolio. You would both slide into the lower fee bracket between $100k and $250k, which would result in considerable savings.

It’s a win-win situation. Your cost has been reduced, your friend starts out at a much lower fee schedule and the advisor has gained a new client.

If you’re working with a fee-only advisor (and you should), be sure to ask the question about combining assets to reduce your investment management costs.

While on the subject of annuities this week, here’s another doozey I come across every so often: The IRA Annuity.

As you know, an IRA is a tax-deferred investment vehicle and so is an Annuity. In my advisor practice I find that, occasionally, a new client comes aboard and his portfolio contains one of those rarities.

If you ask your accountant or tax preparer, he will tell you that an IRA Annuity absolutely makes no sense (unless, he happens to be selling these) from a tax stand point.

If that’s the case, how do investors end up with them?

I got the answer many years ago when my wife (an accountant) was conducting an IRS audit for a client.

I was able to sit in for a portion of the audit dealing with investments, and I asked the auditor about IRA Annuities. He laughed and said that they were simply another tool for someone to generate an up front commission. Other than that, they made no sense at all.

So, if you’re being approached about moving your IRA into an Annuity, be warned that this may improve someone else’s financial condition, and not yours.

If you had such an experience, please share it with me.

Ok, I admit it—I am biased when it comes to annuities. My generally negative view is not based on my own experiences but those of clients and a good portion of my newsletter readers (even though their preferred investments are no load mutual funds and ETFs).

The stories I hear are very similar in that most people I have talked to complain about them in regards to performance, fees and ridiculous surrender charges.

My first question usually is: “Did you go out and buy this annuity or did someone sell it to you?” The moment of silence on the other end of the phone is a dead giveaway that the former didn’t happen but the latter did.

While annuities certainly have a place, most investors are not well informed, or are even being even misinformed, about the pros and cons of such a commitment. For example, one of my retired clients, who is traveling across the U.S. by motor home, called to tell me that at his last overnight rest stop, annuity salesmen were putting on a seminar for seniors and that many signed up. He did too, but changed his mind after discussing the presented information with me.

While this may be offending to those working in that industry, it’s worth noting that high up front commission can very easily compromise the integrity of a salesperson. My suggestion is that if you think an annuity is something for you, do your own research and buy one that has no surrender charges.

While some of my clients have an annuity with my custodian (Schwab), I have also heard good things about “Ameritas Direct.” I have no relationship with them, but you can find out more info at their site at:

http://www.ameritasdirect.com/

However, if you’re stuck with a bad annuity, what can you do? While this is not my specialty, here’s an article by Kiplinger on “How to Unload a Bad Annuity:”

http://www.kiplinger.com/retirementreport/features/archives/2007/01/Cover_Jan2007_03_01.html

If you’ve had a good (or bad) experience with an annuity of any kind, feel free to comment. You can even do so anonymously, if you want to maintain your privacy.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

A strong rally supported by the Federal Reserve’s action, and a neutral statement, had all major indexes showing signs of life.

Our Trend Tracking Index (TTI) for domestic funds moved higher and now sits +4.94% above its long-term trend line (red) as the chart below shows:



The international index rallied as well and currently sits +9.04% above its own trend line, as you can see below:



For more details, and my latest market commentary, please see the above link.

Lately, I have seen a variety of articles touting the benefits of using target-date funds (also known as Lifestyle or Life-Cycle funds) to reach your retirement goals.

One write-up in particular started out by intelligently stating that “low contribution rates could leave investors with a retirement shortfall.”

Duh!

If I don’t contribute to anything, I’ll be facing some kind of shortage in the future. It doesn’t take a mathematician to arrive at that conclusion. That would apply to any type of investment account, wouldn’t it?

The problem I have with Lifestyle funds is that the investing public is lulled into a false sense of security by believing that this type of fund, if regularly contributed to, will be a “safer” investment than a “regular” mutual fund.

This is absolutely not true. Lifestyle funds go down in value during bear markets just as much as other funds. I wrote the article “Do Lifestyle Funds Provide Greater Security” some 4 years ago, just before the U.S. bear market was running out of steam.

You can read it at: http://www.successful-investment.com/articles11.htm

Whether you decide to use Lifestyle Funds, or any other vehicle for that matter, using a prudent approach by staying out of the bear trap (via a sell stop discipline) will do more for your financial health and your future retirement than the investment itself.