Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Week in Review


Financial Planners Rethink Monte Carlo Simulation Tools

Most mutual fund companies and financial planners rely on Monte Carlo simulation tools to help investors plan for their futures. The tools run portfolios through hundreds, even thousands, of investment scenarios to predict the success rate of various returns given contribution rates, investment mix and risk tolerances. But virtually none were ever designed to take a year like 2008 or the current extremes in the market into account-which has prompted many statisticians to go back to the drawing board, The Wall Street Journal reports.

In the bell-shaped curve that Monte Carlo simulations currently use, "the probability of getting one of these extreme outcomes [like we saw last year] is basically zero," explained Paul Kaplan, vice president of quantitative research at Morningstar. He noted that the Standard & Poor's 500 Index has declined 13% or more in one month at least 10 times since 1926. Thus, Monte Carlo simulators should be updated to include a larger number of scenarios that assume greater volatility, say critics, including the Retirement Income Industry Association.

Fidelity Magellan Fund Up 10.6% Year-to-Date

Harry Lange, manager of the $18.6 billion Fidelity Magellan Fund, appears to be back on track, delivering a performance of 10.6% so far this year after a brutal 2008, Dow Jones reports. Large technology and financial bets sank the fund nearly 50% last year.

While Lange hasn't changed his heavy allocation toward large growth, the market is turning around to favor these plays, said Christopher Davis, an analyst with Morningstar. "Things that were disastrous last year have been really helpful this year," Davis said.

As of last November, Lange explained to shareholders that he believed in the bargains he was buying: "While I think it could take a while to work through our difficulties here in the United States, it's often when sentiment is gloomiest that you find the best bargains."

Investors Believe Balances Will Be Restored by 2016

Investors haven't given up on retirement savings, but they aren't expecting their portfolio balances to be restored anytime soon, Age Wave and Harris Interactive found in a survey of 2,082 investors they call "Retirement at the Tipping Point: The year That Changed Everything."

"A new era of cautious self-reliance is emerging from a truly unnerving fiscal dilemma," said Dr. Ken Dychtwald, founder and CEO of Age Wave. "For many people, their retirement dreams have vaporized. Each of the four generations polled is trying to alter its game plan in fascinating ways to seek peace of mind and to make the best of the years ahead."

Respondents, 60% of whom have lost money in the market over the past year, believe it will take seven years for their investments to return to their pre-crisis levels. The single-biggest worry among those age 55 or older, cited by 46% of respondents, is that they won't be able to afford medical expenses. This is now a greater concern that lack of personal savings (18%) or uncertain entitlements (11%).

Americans expect to delay retiring by an average of 4.2 years. Eighty-one percent said teaching children to live within their means is the most important financial advice parents could pass on to their children, up from 69% who said so a year ago. That was followed by 65% saying the best lesson to teach children is to begin saving at an early age.

Ninety-five percent believe that financial management should be taught in high school as a standard subject, and 56% said the best thing about having money saved is having a sense of security.

Nonetheless, 58% said having a loving family and relationships is the most important thing in life, whereas only 33% cited being wealthy.

Despite the dire outlook for the markets currently and what it has done to Americans' savings, 60% said they view retirement as "a new, exciting chapter of life," up from 52% last year. Seventy percent hope to work in some capacity in their retirement, not just to pay the bills but to remain stimulated and to continue to contribute to society.

"While we discovered both disturbing and encouraging signs about retirement from each generation," said David Baxter, SVP at Age Wave, "there are indications that of all cohorts, it's the Millennials [Gen Y] that are coming out of this financial storm a wiser, more cautious and more responsible generation."

Younger Boomers, Gen X Vastly Underserved

Only 18% of individuals between the ages of 28 to 53 seek out financial advice, even though they are in the prime savings and asset accumulation stage of life, according to a survey of 800 investors conducted by Sway Research and Mast Hill Consulting. Most of this group-younger Boomers between the ages of 43 and 53, and Generation X, aged 28 to 42-turn to family and friends for advice on key investing decisions.