IMHO August 22, 2011

IMHO: “Checking” Accounts

I finally got to the dentist last week. 

 

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Don’t get me wrong, I like my dentist.  The folks there are more than nice, they treat you like an adult (even when you clearly haven’t flossed since your last visit), and they outline options in a way that feels like you actually have a choice (including my personal favorite, “If it’s not bothering you, do nothing”). 

That said, it had been a ridiculously long time since I had been there.  Honestly, I knew it had been a while, but when my dentist pulled out his (detailed) record of my last visit—well, let’s just say I couldn’t believe it had been that long.  In fact, I think if I had known how long it had been before I went, I might well have postponed it again, if only to spare myself the embarrassment. 

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Fortunately, despite my extended hiatus, things were in pretty good shape.  Sure, the cleaning was more painful than it might have been, but overall, things were better than I had a right to expect. 

After the market tumult of the past several weeks, I’m sure there are a lot of plan participants who are nervous about the state of their retirement savings accounts, and perhaps rightly so.  I’m betting that, for most, it’s been longer than they think since they checked those accounts—and despite the recent headlines, those accounts may be in better shape than they expect.   

The mantra in such times is, inevitably, “stay the course”—wise counsel in most situations, particularly since the impulse in such times is often action that one comes to regret in the fullness of time.  However, for some, just sitting still and “taking” what the markets choose to inflict on your retirement savings can be excruciating.   

To Do List 

Here are some things participants can do while waiting for things to turn around—things they may have been putting off: 

Get started on rebalancing by changing the investment elections of new contributions, rather than transferring existing balances.   It will take longer to realign the entire account, but at least you aren't realizing those as-yet-unrealized losses. 

Increase current deferral rates.   When you think about just how much cheaper those retirement plan investments are now, it's hard to pass up that kind of bargain.   More so if you aren't yet saving at the maximum level of the match. 

Consider automated rebalancing.  Most providers now have in place mechanisms that will, on some preset frequency (monthly, quarterly, annually), automatically rebalance individual accounts in accordance with investment elections.   It's a good way to keep things in balance without having to worry (or remember) about the best time to do so. 

The Markets August 19, 2011

Fund Outflows Reach 2008 Levels in July

Mutual fund outflows reached 2008 levels in July, with U.S. stock funds loosing the most assets, at $122 billion, or -3.3%.
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A report from Cerulli, utilizing research conducted by Morningstar Direct, said international stock funds ranked second in asset losses, with losses of $30.2 billion (-2.1%). Taxable bonds added the most assets of all the classes, taking in $34.3 billion during July (1.7% increase).

Investment focus in July turned away from equities and into other asset classes; high-yield, commodities, and short municipal bond funds gained traction. Commodities funds moved up the ranks in monthly flows from fourth in bottom flows in May to sixth for inflows in July. Flows into intermediate-term bond funds slowed significantly in July, bringing in $991 million, down from $4.7 billion in June.

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U.S. stock funds experienced market crisis levels of outflows in July with $22.9 billion. The last time the asset class bled more than $20 billion in flows was in October 2008 ($27.5 billion). All managers in the top 10 lost assets in July, with Hartford Mutual Funds leading losses by 4.9%.

 

International stock mutual funds suffered their second consecutive month of outflows in July with $3.7 billion. Losses were driven by world stock funds, which had outflows of $2.0 billion for the month. However, not all categories were in net redemptions; diversified emerging markets funds attracted inflows of $1.3 billion.

As the volatile markets persisted, commodities funds pulled in flows close to $1 billion for July, ranking second behind taxable bonds. Multialternative funds led flows into the alternative class with $341 million.

Balanced funds suffered redemptions of $1.2 billion in July, the first time since September 2010. Looking at balanced categories, inflows from world allocation funds ($722 million) offset some of the outflows from moderate allocation funds in July (-$2.7 billion).

Flows into taxable bond funds slowed in July, the lowest month in 2011. However, while July was a difficult month overall for mutual funds, taxable bond funds managed to rank first by asset class flows. World, emerging markets, and high-yield bond funds collected the most flows within the asset class ($2.4 billion, $2.1 billion, and $2.0 billion, respectively).

While still in positive territory, municipal bond fund flows declined in July to $70.6 million, down from $1 billion in the previous month. The muni-short category captured the highest flows into the asset class, with Vanguard Limited Term Tax-Exempt Fund leading monthly flows for the category ($149 million).

Actively-managed mutual funds took a dramatic hit during the month with -$18.4 billion in net redemptions. The last time actively-managed funds suffered outflows exceeding $18 billion in one month was in December 2008. Large-growth and large-value funds contributed the most outflows among actively-managed funds with -$10.9 billion combined. Although some flows were attracted by passively-managed mutual funds, these funds experienced their third month of consecutive asset losses. With $1.1 billion, intermediate-term bond funds garnered top flows into passively-managed funds for July.

Investor uncertainty that money market funds might not be able to return their entire NAVs contributed to heavy losses in July. Taxable money markets surrendered nearly $104 billion in outflows and year-to-date totaled -$190 billion. Tax-free money market funds also shed assets by -1.5%, however outflows were only $4.3 billion.

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