Financial Advisers Need To Remind Millennials That Bonds Aren't Just For Old People (BlackRock Blog)
For some reason, millennials are only interested in the riskiest investments. Sure, the idea of "higher risk, higher reward" is more suitable for you investors how have the time to wait out the volatility of riskier investments.
It's true that stocks tend to have higher returns than bonds, but they also offer incredibly unstable returns.
In the past 21 years, "bonds have returned between 3% and 4% in a month only three times, and they have never returned more than 4%," writes BlackRock's Matthew Tucker. "Stocks by contrast have returned more than 3% 79 different times, including more than 10% in a single month. The flipside is that bonds have never returned less than -3% in a month, while stocks have returned less than 3% on 41 different occasions, including four different months where they lost more than 10%."
The bottom line is that millennials need to add bonds to their portfolio in order to diversify. When stocks are doing really well, you'll "give up some of that big upside," but you will also "create some cushion to help reduce the impact when stocks are struggling."
Retirement Gets More Complicated If Parents Co-Sign Student Loans (Investment News)
More adults are co-signing student loans on behalf of their children, and it's really going to hurt them in retirement. Although only 3% of households led by those aged 65 and older have student loan debt, the "dollar amount of student load debt by borrowers over age 65 is growing rapidly." In 2005, the number was at $2.8 billion and by 2013 it shot up to $18.2 billion.
Parents "have to retire this debt before they get into retirement," Larry Rosenthal, president of Rosenthal Wealth Management Group said. "[They're] up to their neck in spending issues with this debt, and that's going to move into retirement with them. They won't be able to retire unless we assassinate the debt."
The best option for parents with student loans, and in particular, for those who borrowed PLUS loans when interest rates were higher, should refinance those loans through a Federal Direction Reconsolidation Loan. That'll help bring down interest rates so that retirement will be more manageable.
There Are Lots Of Different Options For New Investors (Morningstar)
New investors should start out with company retirement plans: your 401(k), 403(b), or 457 plans. These plans are good to look into because sometimes employers will match your contribution. Plus, the money automatically comes out of your paycheck, which really helps with "behavioral issues that investors can run into."
For those who aren't satisfied with the basic 401(k)'s there are other options. "One of the big ideas--and this has been kind of a breakthrough for investors over the past several years--is that a lot of platforms, a lot of brokerage firms and fund companies, are offering exchange-traded funds without a commission. So, you can buy with a very low initial investment and just gradually add to your position over time as you have the money. So, this is a very investor-friendly breakthrough," says Morningstar's Christine Benz. She adds those investors interested in this option should look for a "good broad-market index".
And finally, investors who are in need of short-term money should avoid stocks because they may need the money at a time when stocks dip. Instead, Benz recommends that they "sock that money away in some sort of cash account."
Advisers Need To Tell Singles About All Their Retirement Options (Financial Planning)
There's lots of information on retirement for married couples. However, 30% of men, and 52% of women over the age of 60 are single (not to mention the fact that 70% of women over the age of 75 are not married) - and they're going to need financial help, too.
For unmarried clients, it's fairly simple. Advisers should tell them to wait as long as possible before claiming benefits. If they can wait until age 70, benefits will be 76% higher than if they claimed them at age 62.
"Divorced clients who were married for at least 10 years are eligible for a spousal benefit," according to Financial Planning. That means that they can take whichever is higher: their own benefit or 50% of their spouse's benefit. Or they can even do a combination of the two: divorced clients are eligible to start claiming their spousal benefit at age 66, and then can switch and collect their own at age 70 (which has grown bigger by that time).
Widows and widowers can collect survivor benefits, and also collect 100% of their spouse's benefits if they wait until full retirement age (or collect their own, if it's higher).
The Florida Unit Of Banco Espirito Santo Is Being Investigated By US Regulatory Agencies (The Wall Street Journal)
US regulatory agencies are now investigating the Florida unit of Banco Espirito Santo as "the latest front in a sprawling, multinational effort to untangle the finances behind the collapsed Portuguese business empire," according to the WSJ's Margot Patrick.
Portugal's central bank governor stated that Espirito Santo's activity was "fraudulent." The bank is suspected of using financing vehicles in Luxembourg, the British Virgin Islands, and others in order to issue debt, "which was then sold to the bank's customers," Patrick reports. Customers weren't aware of what they were purchasing, nor the risks associated with said purchases, and regulatory rules were broken.
The Florida branch is pretty small comparatively. (On June 30 it reported $751 million in assets, and net profit for the first half of the year was $943,000.) However, the bank was still a major player for Espirito Santo. In 1975 this branch was opened in order "to slowly rebuild its business - a process that culminated with the [Espirito Santo family] buying the Portuguese bank back from the government in 1991."