Q: How can I find out what Social Security benefits to expect in retirement?
A: The Social Security Administration (SSA) used to annually mail out a record of your earnings history and estimates of the benefits you may qualify for now or later. Those mailings have now ceased for folks under 60, but you can look up the information at ssa.gov/mystatement.
Remember that you can get bigger or smaller payments by starting your benefits later or earlier than your expected retirement age.
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Beware of the experts
Some have accused professional mutual-fund managers of being no better at picking stocks than a dart-throwing chimp. That’s insulting to chimps, though.
In any given year, the majority of professional fund managers underperform their benchmark index — a virtual certainty given a limited amount of return to capture and an unlimited amount of fees to charge.
For example, in 2011, 84 percent of U.S. stock fund managers underperformed the S&P 500 index, according to Standard & Poor’s.
That’s bad enough, but dig deeper and it gets far worse. It turns out that the overwhelming majority of professional fund managers focused on the minority of stocks that underperformed the market. It takes skill to be that bad.
This isn’t rare, and it extends beyond fund managers to Wall Street analysts. According to Bloomberg, “The 50 stocks in the S&P 500 with the lowest analyst ratings at the end of 2011 posted an average return of 23 percent (in 2012), outperforming the index by 7 percentage points.”
A common rebuttal is that, while money managers underperform an index, they are better at managing risk and lowering volatility. But studies have shown that the average mutual fund closely tracks the ups and downs of the overall market.
Some professional managers can beat the market and earn their fees. The majority can’t. If you don’t have the time or inclination to manage your own money, you’re likely to do best buying a passive, low-cost index fund.
My dumbest investment
Dear Fool: In 1968, during a lunch with three salesmen at an airport, we sat next to some Japanese men. They recommended investing in shares of Toyota. I bought 5,000 shares at a dollar apiece, and the stock soon began paying 5 percent dividends annually.
In the early 1980s, my Toyota investment had grown to $38,000, and I sold it and invested in some friends’ farmland in Arkansas.
Well, due to mismanagement, I lost all that money in Arkansas. I’m not sure I really want to know, but I do wonder what I would have made leaving the money in Toyota.
The Fool responds: You would definitely have been better off sticking with Toyota.
Its stock has averaged annual gains of about 7 percent over the past 20 years. A key lesson here is the danger of putting too many of your eggs in one basket.
If you weren’t sure about the future performance of either Toyota or the farmland, you might have split the money between them — or instead sought some investments in which you had greater confidence.
The Motley Fool take
Big Blue a bargain
Shares of IBM (NYSE: IBM) rarely trade at bargain levels, but it’s a great company trading at a reasonable valuation these days — with a 1.6 percent dividend yield, to boot. It’s also one of the most valuable brands in the world.
More than 100 years old, IBM is the original information-technology company, adept at adapting to changing times.
It has morphed from a hardware company to one focused more on software and services, earning higher profit margins.
Some see IBM primed to become a leader in cloud-computing-based IT services now, and CEO Ginni Rometty is also moving the company into mobile-computing technology.
Its shareholders can’t complain, as the company’s stock has averaged returns of 9.5 percent annually over the past 30 years, and 16.5 percent over the past 20.
It earns high marks for social and environmental responsibility, and provides energy- and water-management software solutions to other companies.
IBM isn’t perfect, though, as its long-term debt does top $20 billion. That’s not ideal, but it’s generating more than $15 billion in free cash flow annually.
The company has been buying back lots of shares, too, thereby boosting the value of remaining shares.