Savant Blog

Savant offers perspective on a variety of topics. Entries range from current events to timeless insights in the world of finance and investments.

09 May
May 09, 2011

What, exactly, IS the global economic (or investment) impact of the Japanese earthquake, or the no-fly zone over Libya, or the expected bail-out of Portugal and write-downs on Irish bank debt? It appears that nobody really knows.

Nicholas Bloom of Stanford University has reported his latest research, where he and a group of graduate students looked at the behavior of companies in the face of 17 different “uncertainty shocks,” ranging from the Cuban Missile Crisis to the 2008 credit crunch. He

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28 Apr
April 28, 2011

The Federal Reserve implemented QE2 last year when the economy was slowing and many worried about a double‐dip recession. Most economists seem to agree that QE2 accomplished the goal of taking the two worst case scenarios (deflation and recession) off the table.

The concern today is over what will happen when QE2 is scheduled to end in June. Since QE2 started last year, the Federal Reserve has been the biggest purchaser of Treasury bonds. In fact, purchases by the Fed have

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20 Apr
April 20, 2011

Over the past few months I met several clients whose parents were suffering from early stages of dementia. Clients painfully recount how mom and dad began to lose their ability to recognize loved ones. In addition to the emotional challenges, dementia can also have a tremendous impact on a family’s financial resources. How can you help protect mom and dad?

Identify the early warning signs of dementia – don’t be afraid to take action. In one circumstance the aging

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18 Apr
April 18, 2011

How do you define risk when it comes to investments within your portfolio? Risk and volatility are not the same thing, although they are often treated the same.

According to, the definitions of Investment Risk and Volatility are:

Risk: The chance that an investment’s actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment.

The chance that an investment’s actual return will be different than expected. Risk includes the possibility of losing

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07 Apr
April 07, 2011

Typically I think of this saying as meaning if you pay a little extra for certain things, you will
hopefully get higher quality which will be a better use of your money over time. There is a twist to the meaning of this when buying mutual funds. The clever cocktail napkin drawing below says what many research studies have proved to be the case with mutual funds – the higher you pay in fees (expense ratio), the higher the chances are

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18 Mar
March 18, 2011


Equity markets were mostly higher around the world in February with the notable exception of emerging markets, which were dragged down by political unrest in the Middle East. Concerns over political instability in Egypt and Libya sent oil prices higher, and stock markets around the world began to sell off toward month-end causing volatility to return. During the month, U.S. economic data was generally solid, but it was somewhat overshadowed by the uncertainties abroad. U.S. growth (real GDP) continued at

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17 Mar
March 17, 2011

With interest rates near historic lows, the outlook for bond returns may not be as good as the outlook for stocks. As interest rates rise, bonds could be challenged. Even in a worst case scenario where rising interest rates could trigger a bond bear market, it is important to remember that bond bear markets are dramatically different from stock bear markets. The majority of a bond investor’s return comes from income. As rates rise, the income investors receive from their

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22 Feb
February 22, 2011

People in the US have done a pretty good “about-face” in the last couple of years. Savings has gone up and spending has been somewhat curtailed in the face of the uncertain economy. Saving more and spending less is great – but, when it comes to investing, there are a few common mistakes people make time and again.

Loss Aversion. A common theme for investors is to hold on to a losing position (hoping it will bounce back). In fact, loss

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15 Feb
February 15, 2011

Have you ever heard the term “sustainable withdrawal rate?” Sounds pretty technical!. What is your sustainable withdrawal rate?

What this refers to is how much can you comfortably withdraw from your portfolio (spend)in retirement without outliving your assets. The jury is out on what is a true sustainable rate. Some say the average for most investors is 4-5% of your portfolio value each year. My answer: it really varies for each investor, and it is important to run the numbers and

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11 Nov
November 11, 2010

In the aftermath of the November 2nd election, many investors are now wondering about the stock market implications related to the GOP seizing control of the House. Depending on your personal political persuasion, you are likely to jump to some conclusion. While it is easy to let your political bias cloud your view, we think looking at the evidence is far more instructive and likely a better barometer of what to expect.

Many hardcore liberals (typically Democrats) and conservatives (typically Republicans)

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19 Oct
October 19, 2010

If you’re feeling a bit gloomy about the economy and the markets, you have a lot
of company these days. Despite U.S. stocks getting off to a positive start in the scary month of September, the news seems to be all about the possibility of a double-dip recession. One economist, David Rosenberg of Gluskin Sheff, has suggested that the recession never ended despite positive economic growth in the first half of 2010. Meanwhile, the put-call ratio, which compares the number of

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30 Dec
December 30, 2009

With the decade nearing a close, we were recently pondering what an amazing ten year period it has been. Companies that seemed invulnerable no longer exist. Others we had hardly known about or that were at the brink of extinction are now industry leaders, In sifting through our stacks of news clippings, we came across a number of tidbits from the more distant past that offer some important lessons. Big bets on the future that may be life-changing events for

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21 Dec
December 21, 2009

As the Senate is starting to debate the future of 17% of the US economy, the original premise for why we need to go down this path is far from clear. A main reason cited for the need to reform the current system is the poor ranking of US healthcare compared to other countries. The World Health Organization last published a list ranking 190 countries in the year 2000. The US ranked 37th, not as good as Canada or Costa

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20 Oct
October 20, 2009

Fresh off the highly publicized cash for clunkers program, the government is trying a new round of stimulus dubbed “cash for refrigerators.” This $300 million program will provide rebates between $50 and $200 for purchases of energy efficient household appliances. In order to qualify for this rebate, however, the purchased appliances need to be covered by the Energy Star seal. In 2008, approximately 55% of new household appliances met this standard.

This new initiative is expected

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13 Oct
October 13, 2009

From 1998 until 2008, the outstanding loan balance of private student loans increased substantially – from 7% to 23%. As a result of the recent credit freeze, many of these private loan companies are no longer in the student loan business. Those companies who are still around are making private loans more expensive and more difficult to obtain.

Federal student loans – such as Stafford, Perkins, or PLUS loans – generally carry fixed rates and have flexible

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05 Oct
October 05, 2009

I’ve had a small black book in my possession for 8-9 years. No, it is not a list of past girlfriends; each page is devoted to a different part of my financial life or my plethora of passwords. Just to give a few examples:

One page is devoted to each life insurance policy I keep on my wife and I. I detail the issue date, policy number, annual premium, the term and the toll-free phone number for the insurance

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28 Sep
September 28, 2009

Have you been considering installing new windows or doors in your home? Now may be the perfect time to do so. On February 17 of this year, President Obama signed the American Recovery and Reinvestment Tax Act of 2009 into law. This law extends and increases the tax credits introduced by the Energy Policy Act of 2005. This law creates a tax credit equal to 30% of the cost of new energy efficient windows and doors up

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23 Sep
September 23, 2009

If you are a regular reader of these blogs, you’ll notice ongoing references to costs. Costs are important because they directly lower returns. With this in mind, I’d like to share an interesting investment industry tactic that confuses investors.

Mutual funds dominate the investment world. They offer diversification and are easy to buy, sell, and own. Every mutual fund has costs detailed near the front of their prospectus. Too often, the same fund offers multiple variations with

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24 Aug
August 24, 2009

The financial media seems to get things wrong more often than not. This is no surprise since communicating fear and anxiety seems to keep people tuned in when things are scary.  The folly of relying on the predictions made by the media becomes apparent when you look at the pattern.

August 03, 2009

Climbing the Wall of Worry

US stocks extended their winning streak as the S&P 500® Index jumped 7.41% in July; it was the first time since 2003 that the index

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19 Aug
August 19, 2009

The recently passed Consumer Assistance to Recycle and Save Act of 2009 (CARS Act), or Cash for Clunkers as it is affectionately referred to, is a measure introduced by the government to reduce pollution and jump start auto sales. The CARS Act allows you to trade in your old “clunker” (domestic or foreign) for a credit between $3,500 and $4,500 towards the purchase or lease of a new domestic or foreign made car that gets at least 22

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05 Aug
August 05, 2009

From Employer Retirement Plans

Employees who make (or who have made) after-tax contributions to your employer’s retirement plan, listen up. You can now take that money and convert it to a Roth IRA tax-free.

For 2009, to qualify for a Roth conversion, your adjusted gross income may not exceed $100,000, whether you are single or married. Good news though, the income limit on conversions disappears in 2010. Income limits on new contributions to Roth IRAs,

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22 Jul
July 22, 2009

The decision to waive Required Minimum Distributions (RMDs) for 2009 was made to allow the investments in various retirement accounts the opportunity to recover before selling assets to make RMD withdrawals. This applies not only to tax-deferred retirement accounts like IRAs and 401(k)s, but also to inherited IRAs and Roth IRAs.

Inevitably, changes to the tax code – even temporary ones – can raise some questions. So what exactly does this mean for inherited IRAs/Roth IRAs in

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20 Jul
July 20, 2009

It’s human nature for us to feel sorry for ourselves. Some of us are very upset with the losses incurred in the stock market. If not impacted directly, we know a family member or friend that is currently collecting unemployment. My daughter has fallen victim to this. Her employer provided media research to nation wide companies, but with businesses cutting down on their research & development, her employer had to make cuts. My husband and son had been working overtime

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14 Jul
July 14, 2009

 The main responsibility of an Executor is to distribute property to the beneficiaries ccording to the instructions set out in a person’s will. It may sound simple, but executors are often faced with many duties that can become complicated and time consuming. It is usually best to get advice from professionals including an attorney, accountant, and financial planner. You may perform some or all of the following steps when settling an

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06 Jul
July 06, 2009

If Bailout was the 2008 Word of the Year then this has to be in the running for the 2009 honors…

Stimulus– stim-u-lus : something that rouses or incites to activity as a: Incentive b: Stimulant c: an agent (as an environmental change) that directly influences the activity of a living organism or one of its parts (as by exciting a sensory organ or evoking muscular contraction or glandular secretion) Merriam-Webster There is not a person in

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01 Jul
July 01, 2009

Given the market decline from the fall of 2007, many retirees are trying to determine if they need to reduce their expenses. Adjusting expenses to reflect current asset values may diminish the risk of running out of money. I recognize cutting expenses is never simple or fun. After all, in most cases it involves reducing something you may enjoy. Here are a few tips that may help you reduce the pain of lowering your expenses.

1.  Charitable Distributions – While we’d

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29 Jun
June 29, 2009

Earlier this week I learned that Merriam-Webster picks a word of the year. They have apparently been doing this for a few years now. In 2003 the winner was DEMOCRACY, followed by BLOG in 2004, 2005 went to INTEGRITY, while 2006 gave us TRUTHINESS, and 2007 was W00T. Prior to 2008 the Word of the Year was selected based on the number of lookups on the Merriam-Webster website as well as how these words have slipped into everyday discussions. Thus

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22 Jun
June 22, 2009

In the emerging field of “behavioral economics” academics are studying what makes us tick as investors and how we make investment decisions. You’re probably not surprised to learn that the process of investment decision-making is not always rational. Often times what we know we should do and what we actually do are vastly different. We often buy high, sell low, and succumb to panic selling. We attempt to time markets in spite of the preponderance of academic evidence

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03 Apr
April 03, 2009

Another tax season is winding to a close. And while the subject of taxation is not known for being particularly colorful, it has a long and storied past. Taxation and its associated problems date back to some of the earliest recorded history. Who would have guessed that a protest over taxation gave us the dubious moniker “Peeping Tom”?

In ancient times, Egyptian tax collectors known as scribes imposed a tax on cooking oil. To ensure compliance with

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01 Apr
April 01, 2009

With the volatile markets we have been experiencing recently, investors are on a heightened state of alert. With such a captive audience, media outlets are quick to make a headline out of almost any new economic data they can find. The data the media is typically reporting are known as economic indicators. The challenge for investors is understanding what the data means and how it might impact their portfolio. Depending on the type of indicator, it may have no impact

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