Reader Bill e-mailed a feature story in MarketWatch called “Get set for lower long-term stock returns” featuring quotes from Paul McCulley, who is the managing director at PIMCO, the bond guru firm.

He said that “stock returns will be lower for the next 25 years than they were in the last quarter century and investors must adjust their expectations to lower returns.”

His conclusion is sobering for many in that “the stock market’s long-term erosion will force consumers to make one of three unpleasant financial choices: work longer, save more of their current income or reduce expectations for their retirement lifestyle.”

Aaah! I feel so much better about the future after reading that. Yes, this is what you will find in the media on a regular basis: Unadulterated garbage. I can’t stand people sitting in ivory towers and dispensing opinions as if they were omnipotent.

And that’s the beef I have with this kind of forecasting or predicting. It is nothing but a wild guess on Paul’s part, but it sure will rattle the nerves of many investors who hang on to any stupid and negative story that’s written in the press. And it is front page news every time.

Think about this for a moment. It’s impossible to be reasonably accurate in guessing what the Dow might do next week, next month or even by the end of this year. But over the next 25 years? Come on.

However, I think there is a way that we can test Paul’s forecasting abilities. Let’s call him up and have him predict the exact balance of his personal checking account for December 31, 2007. Or the balance of his retirement account by December 31, 2008. If he can do that accurately, then I might believe that he indeed possesses some super natural powers of looking into the future.

It’s ridiculous, of course, he can’t. And so is looking 25 years into the future.

E-mail exchanges and conversations with thousands of my readers over the past few years have exposed me to an unusual and at times odd behavior when it comes to money and investments.

One thing I found was that some investors on one hand are trying to save pennies while on the other wasting dollars by the thousands without even being aware of it, or at least not thinking about it. To me, it’s an oddity when you have to convince someone that paying an upfront load is a total waste of money in today’s environment of low cost ETFs and no load, no transaction fee mutual funds.

Yet, at the same time, that same investor has just spent several hours of his time online trying to save $50 on his next vacation trip or his new PC.

What gives?

For the most part, I think it is just lack of understanding of how brokers make their money. Or annuity salesmen, for that matter. It’s an abusive world out there, and if you don’t educate yourself, you’ll end up holding the short end of the stick.

Most every investor is interested in the same thing when it comes to investment advice: To get an unbiased, honest opinion and receive some guidance without financial motivation based on the product involved.

Sounds simple and yet so difficult. I am not trying to toot my own horn here, but the key is the relationship between you and your advisor. If you engage the services of a fee-only advisor, you can be assured of three things:

1. He is only paid the fee rate you agreed upon

2. He has taken an oath to act in the client’s best interest

3. He does not earn money off any particular product, is not tied to a particular investment firm and is thereby free to offer unbiased advice.

Today, that’s as close as you can get to someone whose financial priority is you and not their own pocket. Compare that to a commissioned salesman who heavily promotes a company sponsored ‘loaded’ product and you know (or you should know) that if you buy, he stands to make thousands of dollars in upfront fees.

How is that for conflict of interest?

Recently, I read a story in TheStreet.com called “Hot Yields Drive Rebirth of Closed-End Funds.”

It did a good job describing the reasons for the renewed interest in CEFs. As baby boomers are aging and moving into retirement, the goal seems to be to generate as much income as possible. While 5% bond yields are common and boring to some, 8% to 9% yields are definitely better.

In February 07, the largest IPO in history for a closed end fund was launched raising some $5.5 billion for the Eaton Vance Global Tax Managed Equity Income Fund (EXG), which yields over 9%. That high yield is being generated by investments in domestic and foreign stocks that pay big dividends. Additionally, the managers use strategies such as issuing covered calls, index call options and preferred securities.

Before you jump right in and put your entire retirement savings on the line for this juicy yield, let’s look at a chart of EXG:



Obviously, this fund has only been around for a few months, but the trend has been down so far. To me, getting a great 9% yield is one thing, but losing value at the same time with the fund deteriorating is another.

When hunting for income generating instruments, I like to not just look at yield, but also at a fund’s ability to hold its value. Otherwise, you’re just trading dollars.

While this is not an exact science, it pays in this scenario to have longer term data available before committing your dollars. That way you can analyze how an income fund has performed during various market conditions. You will never find a fund that will fulfill your requirements 100%, but at least you should make an effort to weed out those that may be totally unsuitable.

Disclosure: I have no holdings in this fund.

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

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

Despite higher oil prices, a pre-Fed announcement rally pushed the major indexes slightly higher

Our Trend Tracking Index (TTI) for domestic funds/ETFs is now positioned +3.30% above its long-term trend line (red) as the chart below shows:



The international index has now moved to +6.69% above its own trend line, as you can see below:



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

As you have seen in the last 2 weekly issues, the StatSheet has been expanded to contain more momentum data, which is now presented in PDF format. This allows me to more easily add new ETFs from the ever increasing menu of choices and enables you to better print out only those areas you’re interested in.

Here are some of the latest changes:

1. The New Venture funds have been included in the Sector ETF section, which now features 197 ETFs. You will note that many are fairly new and have not yet been around long enough to show momentum figures for all time periods. However, I think it’s worthwhile to have them included to see how they develop.

Additionally, many new health care ETFs have been added. It’s is amazing how much they have been sliced and diced into mini sectors. Same here; while they should not be used as an investment at this time due to lack of historical data, they will hopefully be of value in the future.

2. The bear market fund/ETF listings have been expanded to include 31 funds

3. The domestic ETF listings are now featuring 201 funds

4. In case you are interested in income ETFs, a new section called “Bond and Dividend ETFs” has been added.

5. If you like to get the big picture of the ETF world, the Master ETF list has now been increased to show 497 ETFs. That means our StatSheet currently features every worthwhile ETF available.

To keep the same consistency throughout, the sorting order for all tables remains at ‘4-wk.’ I am contemplating other changes as more investment products become available.

Selecting individual country funds for your portfolio can be a challenge due to the above average volatility. Additionally, you’ll never know when one country’s bull market run suddenly peters out while another one continues to scale to new highs.

A better and more conservative way is to use an ETF which covers an entire region such as emerging markets (EEM). While you’re spreading your dollars over a larger area and limiting your gains, you’re also reducing your risk considerably.

For example, everybody would have liked to be participating in the China bull market last year, but many missed that boat including me. Not that I didn’t see the strong momentum numbers develop, I just didn’t like the risk.

But there are still ways to participate more conservatively in regions with great current and future promise called the BRIC countries (Brazil, Russia, India and China). While you can buy an individual country ETF for each of those, you can also buy the entire BRIC community with one ETF called EEB.

Take a look at the following 6-months chart, which shows the EEB performance compared to all other BRIC members:



The advantage of using EEB vs. individual ETFs becomes clear as we’re dealing here with countries of extreme volatility. Leading the pack, you have Brazil (EWZ) as the top performer smoothing out a sub par performance by India (IFN) while Russia (RSX) and China (FXI) are sitting below EEB performance wise.

This is not meant to be a green light for you to jump in with your portfolio, it merely points out another investment option that you may not have been aware of.

I currently have no invested position in the BRIC region but that may change in the future.