Quoted in WSJ article regarding Jeremy Grantham’s Predictions

by Kirk Kinder on April 7, 2013

One of the smartest minds in finance, in my opinion, is Jeremy Grantham, the head of GMO LLC, which manages $106 Billion in client money. Grantham warned of the impending doom that hit in 2008 and called a bottom in 2009. I have followed his writings since 2001, and he has been extraordinarily close when predicting forward 7 and 10 year returns on various asset classes. If you look at his current predictions, it should scare investors. For instance, he is calling for large capitalization stocks (big boys and girls like Disney, GE, Coca-Cola, Walmart, etc.) to return a -0.6% over the next 7 years with small capitalization stocks (companies like Alaska Air, Aetna Health, Starwood properties, etc.) to return -1.7% over the same period. In fact, returns for all asset classes don’t look too pretty according to Grantham. Maybe he is wrong, which is always a possibility in investing, but he does have a track record that forces me to take notice. I certainly concur with this view that these assets are overvalued. My recent webinar shows you how I came to these conclusions: http://www.savingyoufromwallstreet.com/2013/03/market-overview-webinar/
Places You Should Invest

In a recent Wall Street Journal article, I talked with Murray Coleman about using Exchange Traded Funds (ETF) for asset classes the Grantham does like for the ensuing 7 years. Two of Grantham’s favorite areas to invest are timberlands, farm land, and high quality dividend stocks with solid balance sheets. Farm land ETFs don’t really exist right now. You can buy ETFs that invest in companies focused on supporting the farming industry, but Grantham likes the actual land. This isn’t available in ETF form or mutual funds right now. However, options exist for timberlands and high quality dividend stocks. From the article:

Two areas he has been more positive about–timber and high-quality dividend-paying stocks–are also asset classes favored by Picket Fence’s Mr. Kinder. In client portfolios, he is adding to positions in the iShares S&P Global Timber & Forestry ETF (WOOD) and the Guggenheim Timber ETFCUT -1.24%(CUT).

“There’s a strong diversification benefit to including timber ETFs into the mix,” Mr. Kinder says. “Although it wouldn’t be surprising to see a short-term pullback in lumber prices, the fact that Grantham sees longer-term value adds to our conviction about that asset class.”

As for higher quality stocks, he is currently investing in the SPDR S&P Dividend ETF (SDY). “It focuses on companies that have raised their dividends over the past 20 years, which highlights businesses with strong balance sheets,” Mr. Kinder says. “These are the bellwethers that Grantham seems to like.”

Other options exist, especially for the high dividend ETFs, but these are the options I like for timber and high dividend paying stocks. So as you look for ways to invest your money for the next few years, you may want to think about adding these asset classes to your portfolio. Just ensure you research the options before investing.

Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does  this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions.  Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).

All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.

Mistakes Parents Make When Planning College

I was recently featured on WBAL Channel 11 discussing mistakes parents with college planning: Top 6 college tuition mistakes parents make | Maryland News – WBAL Home

While parents make several mistakes planning to pay for college, I featured six of the most common mistakes I see:

1. Not creating competition among colleges: If your child identifies a school, you should have your child apply to two or three similar schools. For example, if your child applies to a small, liberal arts private school, you should apply to similar schools. Often children apply based on geographic considerations, rather than similar schools, even if they aren’t close geographically. By applying to similar schools, the student has a chance to create competition. If your child’s first choice comes back with a lower amount of aid than a similar school, you can appeal the decision by your child’s first choice.

2. Assuming you can’t afford private college: It is common knowledge that private school is more expensive than state schools. So many parents completely write off private school. Often, private school may not cost more than a state university. Aid is based on the Expected Family Contribution (EFC), and a family may qualify for more aid at a private school, especially if the family has more than one child in college.

3. Ignoring community colleges: It’s natural for parents to want to provide everything for their child, but community colleges are a solid way to save money. If the child finishes at a four year school, the degree reads the name of the four year school with no reference of attending a community college. Community colleges are excellent institutions and offer students a chance to get the pre-requisites out of the way at a much lower cost.

4. Worrying too much about the FAFSA: Parents often make drastic maneuvers to qualify for more aid. The primary way of doing this is by re-positioning assets. There are lots of insurance and annuity salesmen who prey on parents promising higher college grants by selling products to improve their FAFSA outcome. While it is true life insurance and annuities are exempt from the FAFSA calculations, most people don’t end up with more aid due to these maneuvers. Once a family make more than $50,000, the grants are harder to receive. Additionally, moving assets into these vehicles has a material impact on retirement and taxes.

5. Not Thinking Strategically about the tax return: Some parents make unnecessary moves to get more aid, but the opposite is true as well. If a parent doesn’t think about the tax ramifications for each taxable event, they can jeopardize potential aid. One time events usually lead to lower aid. The Expected Family Contribution is based primarily on the tax return. Some examples of common one time events are:
- Taking capital gains in a year by selling a stock
- Getting a one time bonus
- Selling a rental property for a gain or even selling a business
- Taking an IRA distribution, especially one to pay for college.

6. Sacrificing retirement savings for college: As mentioned previously, parents want to do everything they can for their children including paying for college. However, many parents are behind on retirement savings. Your child can get loans for school. Parents can’t get loans for retirement. If the choice is saving for retirement or paying for college, then retirement rules the decision.  Even worse, some parents actually remove money from retirement vehicles to pay for college. This has big tax ramifications and can materially affect the financial aid the student is eligible to receive.

Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does  this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions.  Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).

All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.