Category: Wall Street/Investing

The Goldman Sachs apology has been evolving over time. Here is what Goldman CEO Lloyd Blankfein told me at the White House in March:

"There was no doubt there was bad behavior and over leverage on Wall Street, like there was over leverage in every aspect of the economy."

In June, here is what Blankfein said:

"We participated in the market euphoria and failed to raise a responsible voice.

This week:

We're a leader in our industry and we participated in things that are clearly wrong and we have reasons to um, regret and apologize for and we're subject to. And some of this is real and some of this is extrapolated, but all of it can't be good for a firm that has to...for a financial service firm that sells its reputation in part that we will take care of your needs and not draw attention to ourselves.

Ever hear of the Rule of 72? How about the Rule of 300?

They are easy ways to get a rough idea of whether your investments will grow big enough for your retirement.

When I say "rough," I mean very rough. But there's no perfectly precise alternative, because all projections rely on guesswork about investment return, inflation and the number of years you'll be retired.

When my son Dash was eight or nine, my wife and I took him to Puerto Rico for a winter vacation and we invented coffee eggs.

We were staying in a resort that charged about $35 for three breakfasts that were nothing to brag about. On the second day we bought eggs at a little grocery and boiled them in the coffee maker in our room, saving a couple of hundred dollars over the rest of the trip and missing nothing we cared about.

On another vacation we invented the Whopper Test. Was the $40 restaurant dinner 10 times better than a $4 Burger King Whopper? If the answer was "no," the Whopper was the better value. We apply the Whopper Test to everything.

Come January, millions of Americans will be allowed to open tax-free Roth retirement accounts, due to repeal of a longstanding rule that prevented "Roth conversions" by taxpayers earning more than $100,000 a year.

Shifting money from a traditional IRA, 401(k) or similar plan to a Roth can be a profitable move for many, but a money-loser for many others. It's worth thinking about now because you may need to scrape up quite a bit of cash to pay tax on a conversion if you conclude that's the right move.

First, a quick refresher: Roths are a form of individual retirement account that has been around since 1998. There is no tax deduction on contributions, but all withdrawals are tax free, including investment gains. Also, you're not required to start taking money out after turning 70 ½, as with traditional IRAs and 401(k)s. (More details. Also see IRS Publication 590.)

Charles Schwab, the discount brokerage, made a bit of news this week by offering eight new exchange-traded funds, or ETFs. That wasn't such a big deal in itself, since the ETF business is booming with new offerings from just about every mutual fund firm and brokerage. But Schwab has upped the ante by allowing its customers to trade the house-brand ETFs for free - without paying the $12.95 brokerage commission for trading other types of stocks.

Now that's interesting. Commissions have been one of the few drawbacks to ETFs, because they can chew up accounts of investors who want to add modest sums frequently. That $12.95 is 6.5 percent of a $200 purchase, for example. You wouldn't want to pay that every month. With an ordinary mutual fund, as opposed to an ETF, you can buy and sell with no fee if you deal directly with the fund company.

You don't mind paying 1 or 2 percent in annual mutual fund fees? Okay, how would you feel about 10, 15 or 20 percent? Maybe even 30 percent?

Numbers like that would get most investors' attention - if they were real. In fact, they are. I'll get back to that in a moment.

What brings this up is news of a U.S. Supreme Court case involving investors' complaints about high fees. They are unhappy that the Oakmark family of mutual funds charges individuals twice what it does institutions like insurance companies and pension funds.

For the last couple of weeks, we've been having a huge national debate over what to pay people.

Ken Feinberg, the Treasury's Special Master, has weighed in on bailed -out banks. The Federal Reserve is getting into the act, asking banks to explain the relation between pay practices and risk.

Today it was the Supreme Court's turn to dip a toe into the national discussion.

The case at hand is Jones v Harris Associates. Jones and two other plaintiffs are individual investors. Harris Associates is the sponsor of the Oakmark Funds and the investment adviser, a common feature of the mutual fund industry. To manage the conflict of interest between the adviser and the fund it operates, the law requires compensation be set by an independent board of trustees representing the fund.

The shareholders in this case argue Harris' fees are excessive because they are twice as high as those charged to institutions for virtually identical advice. Harris -- and the mutual fund industry -- argue the advice and services are very different, justifying the higher fees.

If someone made me America's personal-finance dictator, I'd scrap the 401(k). These workplace retirement plans are inequitable, as some companies offer good ones, some bad ones and others none at all. Fees are often too high. And even the better plans often don't provide enough investment options.

Instead, I'd like to see the Roth IRA opened up to allow 401(k)-sized contributions - $16,500 a year instead of $5,000. (Or $22,000 and $6,000 for people 50 and over.) And I'd like to see the Roth's income limits lifted, so anyone could have one.

Roth's don't offer tax deductions on contributions, as 401(k)s do, but Roth withdrawals are tax free, while money taken out of 401(k)s is taxed as income, at rates as high as 35 percent. Most importantly, with a Roth you can invest in just about anything you want, not just a set of funds picked by the boss.

But since I'm not running things, the best I can do is suggest ways to make the traditional 401(k) work best.

Life, as we all know, is unfair. You can shun cigarettes all your life and still get cancer, while your chain-smoking uncle lives to 100.

It's the same with investing. What's one to say to the stock-market investor who did everything right - diversified, used indexed funds, stuck with it for the long term - and got hammered anyway?

A disturbing story in The New York Times, relying on research by Morningstar Inc, the market-data firm, points out that people who invested in a Standard & Poor's index fund 10 years ago have lost money, while folks who bought diversified portfolios of government bonds made 8.1 percent a year. In fact, the S&P 500 has underperformed long-term government and corporate bond categories over the past 20 years, largely because stocks did so poorly over the past 10.

After a very long earnings recession (defined as consecutive quarters of declining/negative earnings growth), there is finally an end in sight. So far Q3 results, while still negative, look decidedly better. While market pros are happy about the improved profits, they are mostly jazzed that the numbers are beating expectations. This is one of those funny inside Wall Street nuances. Its not so important what the company earned as it is what everyone thinks it will earn. In other words it's all about "expectations." In Q3 companies are surpassing those expectations....and in some cases by a lot.