Examining the impact of Obama’s plans by Kathleen Pender, San Francisco Chronicle, Tuesday, January 26, 2010.

The White House on Monday previewed several middle-class tax cuts and spending programs that President Obama will propose in Wednesday’s State of the Union address.

Proposals include:

• Improve 401(k) plans by requiring better fee disclosure, encouraging employers to make unbiased investment advice available to workers, promoting annuities and other forms of guaranteed lifetime income and requiring better disclosure of target-date funds.

SCLC principal Jon Chambers appears in San Francisco’s KTVU Channel 2 May 18, 2009 special report on the state of 401(k) plans. The segment is reported by KTVU’s Consumer Editor, Tom Vacar.

While many mainstream media sources have been reporting on problems with 401(k)’s and the limited retirement savings opportunities available to American workers, SCLC doesn’t believe the news is all bad. Consequently, we were pleased to be involved to help communicate some of the good news.

Here is link to the full video report (you need to wait a few seconds for the video to load, and there is a brief commercial before the report plays).

This is no April fool’s joke.

On April 1st Patrick Collins addressed a meeting of the Estate Planning, Trust and Probate Law Section of Bar Association of San Francisco. The topic is “Changing Economic Conditions and Trust Investment Policy – Implications for Trustees and Beneficiaries.” Both SF Bar members and others are welcome.

The BASF announcement has all the details.

If you could not attend but would like a copy of the handout materials, please email Kelly Woodard

Given the magnitude of recent declines in the price of financial assets, commodities, and residential real estate, investors are coping with decisions about how to invest on a go forward basis. Our recent paper (appearing in our Investment Quarterly for Quarter 4, 2008] situates decision making within the context of investor ‘utility,’ where utility measures the investor’s aversion to declines in wealth as well as the investor’s satisfaction with gains in wealth.

For some investors, risk tolerance changes with increases or decreases in their level of wealth. However, many investment policies mandate a constant proportional weighting between stocks and bonds during both bull and bear markets. A fixed investment allocation is usually termed a “Constant Mix” asset management approach. Such an approach is defensible under a variety of commonly held assumptions; and, is often recommended as a reasonable alternative to the risks of market timing. Advisors advocating that investors “stay the course” during perilous market conditions implicitly assume that investors, in general, benefit from a Constant Mix approach.

Warning! Economic disaster is closer than you think.

Why have an investment reserve? The underlying mathematics of compound return indicate that the more volatile the investment, the lower a portfolio’s long-term growth rate, all else equal. An investment that losses 20% in period one needs 25% in period two in order to get back to even. Periods of negative returns not only decrease portfolio value but, if the portfolio is also funding retirement distributions, the distributions take dollars out of the portfolio at the worst possible time. In a nutshell, distributions multiply the bad consequences of negative returns and cap the benefits of positive returns. The Wall Street term for taking money out of portfolios during periods of economic distress is “feeding the bear.”

An article in the October 2008 edition of Trusts & Estates Magazine (“The Journal of Wealth Management for Estate Planning Professionals”) includes a ranking of the 100 largest U.S. Registered Investment Advisory firms by Assets under Management. SCLC ranked 47th.

Here’s the article: Asset-gathering Machines (subscription required)

By now, you have probably worked up the courage to peek at your October statements. For most investment positions (with the exception of some bond funds) returns were “double-digit” negative. The October decline accounts for approximately half of portfolio year-to-date losses across a broad spectrum of asset allocations. In terms of SCLC’s reporting metrics, October results are at the end of the left-tail of the historical distribution of post 1972 returns—declines of this magnitude have happened before; but nevertheless it comes as a shock.

Here are some observations for your consideration:

Some have said the attached newsletter contained many “factoids,” others think we’ve been data mining. I say it’s worth reading. If nothing else, it will provide fodder for water cooler conversations, or for your next cocktail party.

As you know, volatility in many financial markets has increased over the past year. It seems that the ‘volatility’ of TV, radio, and print-media news has also increased. This letter is an update on our investment views.

About six months ago, as U.S. equity prices continued to decline, we sent you a letter indicating that the fallout from the residential housing mortgage crisis was spreading to other financial markets. The mechanism for transmitting this contagion was the banking system. In a nutshell, as the banks’ aggressive home loan portfolios came under pressure, regulators demanded that banks shore up their balance sheets. Many money-center banks had large loans out to hedge funds. Sad to say, some hedge funds chose to maintain double-digit rates of return by levering their investment positions. Financial leverage can turn mediocre investment results into attractive returns—but only at the cost of increasing investment risk. As the banks called the hedge fund loans, the funds had to unwind their investment positions by selling securities. Some hedge funds were leveraged 30 to 1, and had to sell large amounts of securities to raise a sufficient amount of cash to repay bank loans. Some hedge funds went bankrupt [proving, yet again, that there is no riskless investment that can forever generate double-digit returns]. Equity prices continue to decline as leverage is wrung out of the system. Given a long-term view, we suggested that this was a good thing despite the obvious fact that nobody enjoys periods of price decline.