CTMPR

If you are an American investor it’s imperative that you understand the logic that drives Ben Bernanke.  Ben has spent years studying the Great Depression as well as the deflation in Japan.  In his 2002 speech he outlined in detail how to avoid deflation in a fiat monetary system.  Over the past two years he has been executing on his plan and both the stock and commodity markets have responded with a dramatic rise.  Watch this video to gain more insight into the mind of Bernanke.  He is an expert at creating inflation but will he be able to manage the outcome as easily as he makes it sound?  I guess if he follows Paul Volker’s example from the early 80’s it may be possible, but with such a weak economy it won’t be easy to do.

All I know is we probably have another wild decade ahead of us…..

If you are looking for information on GTAA it’s probably because of a book like The IVY Portfolio or maybe you have heard about the outstanding performance of the Yale and Harvard Endowments over the past years.  On the surface, this looks like the ultimate ETF for managing retirement funds.

Global tactical asset allocation is a fancy way of saying you are involved in all major market sectors on a worldwide basis:  U.S. Stocks, International Stocks, Emerging Market Stocks, U.S. Bonds, Foreign Bonds, Currencies etc.  The key to success with this philosophy has been to be invested in a sector when the trend is up and to move to cash when the sector turns down.  In theory it’s a wonderful system that has provided excellent returns for active managers who have followed the philosophy.   The key will be whether or not the “Investment Philosophy” can translate into a winning ETF strategy.

I eagerly purchased shares of GTAA the very first day of trading because I honestly want someone else to watch the markets for me and get me out of harms way when things go bad.  Only time will tell if this will be the ultimate Retirement ETF……  I am hopeful!

Hopefully this will not be Deja Vu!

The only thing that makes me nervous is that sometimes theory or practices that work for individual managers don’t translate well into ETF strategies.   I had similar high expectations for LSC (S&P Commodity Trends Indicator ETN) when it launched in 2008.  The past track record that was published in an S&P report showed better than 14% annualized returns.  Best of all, this is a long/short commodity strategy that has no correlation to the performance of the stock market.   Well, something has definitely been lost in the implementation because LSC has struggled and I lost interest after the first year.

There are a couple long running debates in the financial world, one being Term Vs Whole Life Insurance and the other being the Traditional IRA Vs the Roth.  In both of these debates, both products have their purpose and the answer for you depends on your circumstances.

For example:  If you are currently in a high tax bracket but expect to have much less income during retirement you may value the current tax deduction more than tax free income at retirement.   Many sales people have a high current income but don’t plan on working past retirement age and typically don’t have much residual income.

If however, you plan on having a high level of residual income even after retiring (business owners & farmers) the tax free income may be more important than having additional current tax deductions.  Additionally, the Roth IRA allows for more flexibility post retirement so you may even be able to use this money as part of your estate planning.

Additionally, if you feel tax rates are going to be significantly higher in the future than now it may make more sense to contribute to a Roth IRA.  On the flip side, some people fear that the government will change the rules if they get into a bind with the high deficit.  If this is your opinion you would want to take the tax deduction now.

Also, it doesn’t have to be an all or nothing decision so you can contribute 1/2 to a Traditional IRA and 1/2 to a Roth to tweak both your current and retirement taxes.  In fact, hedging your bets in this way is probably a reasonable thing to do in an uncertain environment.

This article talks more about this topic.