Updated: May 3, 2013 12:14PM
Originally published: November 19, 2003
Today’s column comes in three parts -- each an update on a previous column. The three topics are the current mutual fund mess, the gold market, and an online retirement tool featured here two years ago that is now being recognized as the best of the Web.
Mutual fund scandal. You read it here a week ago: The smart money is moving out of mutual fund management companies like Putnam, Strong and Janus, which were implicated in allowing either illegal or unethical in-and-out trading in their funds. Wednesday’s Wall Street Journal confirmed that Putnam management company assets fell by $14 billion in the last week, with $4 billion coming out of the firm’s mutual funds and the balance from institutional managed accounts.
In fact, the street is closely watching some of the smaller and mid-cap stocks known to be widely owned by these fund management companies. Says the Journal: “... some stocks could be hit by selling as the funds try to raise cash, or as savvy investors bail out early before the mutual funds themselves start to sell.”
Readers’ e-mails confirmed widespread interest -- but also revealed that many readers got upset before considering the entire situation. My get-out-now advice applied to the fund companies named in the column. My advice did not apply to certificates of deposit or money-market accounts at banks that managed other funds that are being investigated for improper trading. And to reiterate another point: It’s important to consider transaction costs and tax consequences if you decide to sell fund shares.
Readers who have money in 401(k) accounts managed by those fund companies, and therefore cannot entirely move their accounts, might want to contemplate hiding in the less volatile money-market fund alternatives within their plan, while vigorously lobbying their employers to move the entire retirement plan to another manager. Several state 529 plans have already announced their intention to do so.
While some big institutional accounts may move their stocks to new management companies instead of demanding cash, there’s obviously plenty of selling being done by the new portfolio managers. Individuals who redeem mutual fund shares will get cash, raised by selling stock.
Only in cases of extreme market illiquidity do mutual fund charters allow redemptions to be paid out in shares of individual stock. But that action would indicate even more severe problems for any fund company that elected to go that route.
Going for gold. On Sept. 4, 2003, this column quoted two experts who made a good case for rising gold prices, then trading at $375 per ounce. Wednesday, gold reached a 7-year high, spiking over $395 an ounce and attracting the attention of financial commentators.
James Dines, who was quoted in that previous column as saying “it’s not too late to buy,” confirmed Wednesday that he expects much higher gold prices as the implications of the government’s spending and proclivity for printing new money begins to impact foreign holders of U.S. debt.
To reread that column, and its list of mutual funds that buy gold shares, go to www.TerrySavage.com and check under “Read recent columns.” See also the column from Dec. 19, 2002, when gold was trading at $340 an ounce. And, yes, I openly confess to having been invested in gold funds for quite a while as I share the belief that excessive debt combined with a policy of printing money in an attempt to hide the burden of that debt will debase the currency -- and lead to a search for an alternative that has demonstrated the ability to hold its value over the centuries.
Retirement calculator. It’s time to take another look at what I’ve previously described as the best source of retirement advice for those wondering how to invest and how much they can withdraw each year to make sure they don’t run out of money before they run out of time!
The T. Rowe Price Retirement Income calculator is now available online at www.TRowePrice.com/ ric/RIC. You’ll quickly input the variables including your retirement age, years you plan to live in retirement, current assets, and monthly income goal. Then you can choose from portfolio investment alternatives. A click of your mouse will let you know if your retirement investment and withdrawal scenario are realistic.
See, if you keep your eyes open, the world of money doesn’t have to be a mystery in which individual investors are left guessing about what the pros are doing. And the pros aren’t always the winners anyway. That’s the Savage Truth.
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange and McDonald’s Corp.