The article makes a good case for buying stocks directly rather than indirectly (lower tax bill on gains). There is yet another advantage to buying stocks directly: you avoid paying management fees to mutual fund companies.

There is a significant drawback not mentioned in the article. Poor people like us can not buy a fully diversified portfolio. If you have millions, buying all 500 of the S&P 500 is possible. If you have $1,000 it is not.

Another thought comes to mind: what are the taxation rules on an ETF? Here’s an extra credit assignment for you: prepare a table that compares the taxes on realized gains, unrealized gains, and dividends for mutual fund shares, individual stock shares, and ETF shares. One page and please cite your sources (website, irs code, textbook, previous article, etc.).

http://www.reuters.com/article/2012/09/26/column-personalfinance-idUSL1E8KP4YL20120926

I think this article speaks for itself. Ironically, I came across this one right after my previous post on Bank of America job cuts. http://www.latimes.com/business/la-fi-pawlenty-bank-lobbying-20120921,0,1728159.story

We bailed them out with taxpayer dollars. They paid their executives 5 or 6 billion in undisclosed bonuses. They tried to extract a $5 per month fee if you use your debit card as debit card. They previously announced 30,000 job cuts. Now they are accelerating the job cuts with this 16,000 job cut. And this is what we call shared prosperity job creation trickle down economics? I have said it before and I say it again. Transfer your big bank accounts to a credit union. For more info, see “The cadence of finance” in education-> learning modules. http://mobile2.wsj.com/device/article.php?CALL_URL=http://online.wsj.com/article/SB10000872396390443816804578004640193683614.html?mod=googlenews_wsj

One sentence summary: Given CalPERS is underfunded by $75B it does not make sense to add more people into the broken  CalPERs system.

Multi-sentence opinion: It does make sense if you need to draw money from fresh new participants to maintain the high benefits to previously retired and current members.  This is similar to a Ponzi scheme.  It is better for early entrants: the previously retired and current members.  The alternative would be to cut their benefits or CalPERs expenses.

Something has got to give.  The reinvestment rate assumption of 7.75% is not realistic.  So what gives?  Cut existing benefits?  Take more risk to [hopefully] achieve 7.75%?  Maintain existing benefits and cut those of newcomers (while still drawing the same amount from their checks)?  Tough choices indeed.

What would I do?  Several things simultaneously.

1. Revise that 7.75% downward to something more reasonable, maybe 5%.
2. Adjust existing and new pension plans so that the payouts are commensurate with the expected returns of 5%.  That is, shared sacrifice.
3. If returns turn out to be higher than the conservative expectation, pay out a bonus check equitably to members who contributed to the plan.  That is, shared prosperity.
4. Revisit the CalPERs cost structure.  Any overly-generous contracts?  Have we seen a divergence in the pay of the average CalPERs worker vs. top management?

I know these are high level suggestions needing further analysis.  I just hope someone at a high level hears about this blog and considers the suggestions.  Here is the article:

http://m.appeal-democrat.com/articles/view-119534-keep-kevin.html

http://mobile2.wsj.com/device/article.php?CALL_URL=http://online.wsj.com/article/SB10000872396390443847404577629841476562610.html?