FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
You Will Soon Be Able To Invest Your 401K In Private Equity (The Wall Street Journal)
According to Wall Street Journal financial reporter Daisey Maxey, “some big names of the private-equity world are working to make private-equity funds an option in defined-contribution retirement plans, such as 401(k)s, as soon as next year.”
Investment in private equity has traditionally been limited to the very wealthy, However, Maxey believes that, “Offering such investments within a 401(k) plan isn’t as exotic as it may sound: pension-fund investors have long been able to invest in the deals, but those investors are drying up as pension funds fade out.”
David O’Meara, a senior investment consultant at Towers Watson Investment Services added that, “private-equity investments are already offered within some defined-contribution plans, though that is rare and the products don’t offer daily pricing and liquidity”
According to American Enterprise Institute money and politics columnist James Pethokoukis, years of stagnant wages, declining labour force participation, and job polarization have led to fewer and fewer Americans in the middle class. Citing a recent Pew Research Poll, Pethokoukis writes that in 2008, 72% of Americans considered themselves to be either middle class or upper-middle. That number has fallen to just 57% in 2014. In that same time, those who self-identify as either lower-middle class or lower class shot up from 25% all the way up to 40%.
Now Is A Good Time To Buy Stocks (Fidelity)
So far in 2014, stock have been riding high. The S&P 500 shot past the 2000 point mark for the first time in its history. However, “amid all the good news, some investors have grown nervous that the markets are due for a correction or that stocks have reached the kind of heights that preceded the major bear markets of 2001 and 2008.”
Fidelity fund Sonu Kalra and Gavin Baker believe that while the short-run is uncertain, the long-term potential for stocks remains attractive.
“Valuation remains pretty close to historical norms, above the historical average but not dramatically above it,” says Kalra. “I would describe the market overall as fairly valued — but that doesn’t mean we can’t continue to see gains. The U.S. economy continues to grow at a slow but steady pace and, historically, bull markets have ended with a slowdown in the economy. But given that we are in the fifth year of a bull market, I do think you need to be selective about what you own and look for real opportunities.”
What A Company Does With Its Money Is Just As Important As How Much It Earns (The Financialist)
Although most people focus on the earnings aspect of financial reports, “yet just as important to shareholders — if not more so — is what a corporation does with its cash once it’s made it.” The Financialist’s Jens Erik Gould, argues that “this process known as capital allocation goes a long way to determining what future earnings headlines will say and where a company’s stock price will be.”
Gould points that, “amazingly, CEOs tend not to be particularly skilled in capital allocation. Most earn their positions by excelling in other areas, such as marketing, engineering, production or administration. But once in charge, they quickly realise that allocation is their primary task.”
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