July 30, 2014

Sometimes individual bonds are less risky than bond funds

by Grace

Although usually considered safer than stocks, bonds carry their own risks.  In particular, bond funds present specific risks not found in individual bond investments.

Bonds have long been viewed as a port in the storm, a low-risk asset class that creates consistent cash flow and helps to balance equity market mood swings.

But Shelly Schwartz of CNBC wrote about the “top six ways the most benign securities in your asset mix can potentially pack a punch”.

1. Interest-rate risk …
2. Bond fund risk …
3. Credit risk …
4. Liquidity risk …
5. Inflation risk …
6. Reinvestment risk …

Each item is detailed in the CNBC article.  I have a particular aversion to bond fund risk, and strongly prefer individual bonds or Unit Investment Trusts over bond funds in my own portfolio.  I invest in bonds for longer-term stability and consistent yield, two features often missing in bond funds.

Bond fund risk

Unbeknownst to many, bond funds also expose investors to a unique set of risks in a rising rate environment that individual bonds do not. Why?

Individual bonds, like Treasuries, municipals and corporate bonds, are sold with a finite maturity: the date on which you, the investor, get your principal back—if the debt issuer doesn’t default—and the interest payments you’ve been receiving stop.

Interest-rate fluctuations don’t affect investors who hold individual bonds to maturity.

Fixed-income securities held within a bond fund, however, are designed to mature on a staggered basis, creating a perpetual income stream for investors. The fund manager replaces bonds as they mature, when the issuer’s credit is downgraded and when the issuer “calls,” or pays off the bond before the maturity date.

When bond prices fall as interest rates rise, the net asset value (NAV) and return of a bond fund also decline, said Greg Ghodsi, senior vice president of investments at Raymond James.

A $300,000 investment in a fixed-income mutual fund with an average maturity of 20 years (a mix of 10-, 20- and 30-year bonds), for example, would be worth $260,000 if interest rates climb just 1 percent. (Shorter-term bond funds would be less volatile.)

But the pain doesn’t end there. The drop in value makes investors nervous, which prompts more selling. That forces the fund manager to unload some of their holdings to meet redemptions, said Ghodsi.

Depending on how significant the redemptions are, he noted, they may have to sell their highest-yielding bonds and replace them with those offering a lower yield, or assume more risk to obtain the same return, which can drive prices quickly lower.

The investors who didn’t bail get stuck with an investment that may not match their risk profile or income needs—one that is suddenly a lot less liquid on the secondary market. Ouch.

———

Shelly Schwartz, “6 ways bonds can bite you”, CNBC, July 14, 2014.

Tags: ,
July 29, 2014

Wages for recent college grads are not keeping up

by Grace

Wages are rising, but not for young grads

A new analysis from the San Francisco Fed finds entry-level earnings for new college grads — defined as working graduates age 21 to 25 — grew only by 6 percent from April 2007 to April 2014. In comparison, median weekly earnings for all workers grew two-and-a-half times as fast, at 15 percent. And while recent grads tend to fall behind after any recession, the gap since the Great Recession has been both wide and long-lasting.

20140723.COCCollegeGradWages1

Is this cyclical or structural?

There are differences of opinion about whether this stagnation is due to a short-term economic downturn or arises from a more fundamental problem, “like a mismatch between recent grads’ skills and open positions”.

One thing that seems clear is that as the percentage of the population with college degrees continues to increase,  there are “too many college graduates chasing too few college-level jobs”.

20130206.COCJobsVsDegrees3

Related:  “Technological advancements stunt job growth – ‘the great paradox of our era'”

———

Danielle Kurtzleben, “Young college grads’ wage growth is falling farther and farther behind”, Vox, July 21, 2014.

Tags:
July 28, 2014

Right-tail gender disparity of SAT math scores

by Grace

Could this be one of the reasons women are underrepresented in engineering and computer science?

20140722.COCWomenMathSAT1

2. Chart of the Day above illustrates graphically one of the reasons that women are under-represented in the more mathematically intensive STEM fields like engineering and computer science. In 2013, boys out-performed girls for perfect scores of 800 on the math SAT test by a male-female ratio of 1.88 to 1 (188 boys for every 100 girls), and for a near-perfect score of 790 by a ratio of exactly 2 to 1.

These facts make some people uncomfortable, as shown by the criticism Larry Summers received when he remarked on the right-tail disparity in men’s math scores.

———

Mark J. Perry, “Monday afternoon linkage”, Carpe Diem, July 21, 2014.

Tags:
July 25, 2014

Where are the most racially segregated schools?

by Grace

The Nation’s Most Segregated Schools Aren’t Where You’d Think They’d Be

The Huffington Post reports that the “nation’s most segregated schools aren’t in the deep south — they’re in New York”.  This was from a report released earlier this year by the UCLA Civil Rights Project.

That means that in 2009, black and Latino students in New York “had the highest concentration in intensely-segregated public schools,” in which white students made up less than 10 percent of enrollment and “the lowest exposure to white students,” wrote John Kucsera, a UCLA researcher, and Gary Orfield, a UCLA professor and the project’s director. “For several decades, the state has been more segregated for blacks than any Southern state, though the South has a much higher percent of African American students,” the authors wrote. The report, “New York State’s Extreme School Segregation,” looked at 60 years of data up to 2010, from various demographics and other research.

There’s also a high level of “double segregation,” Orfield said in an interview, as students are increasingly isolated not only by race, but also by income: the typical black or Latino student in New York state attends a school with twice as many low-income students as their white peers. That concentration of poverty brings schools disadvantages that mixed-income schools often lack: health issues, mobile populations, entrenched violence and teachers who come from the least selective training programs. “They don’t train kids to work in a society that’s diverse by race and class,” he said. “There’s a systematically unequal set of demands on those schools.”

New York City schools are the most segregated.

…  Of the city’s 32 Community School Districts, 19 had 10 percent or fewer white students in 2010. All school districts in the Bronx fell into that category. More than half of New Yorkers are black or Latino, but most neighborhoods have little diversity — and recent changes in school enrollment policies, spurred by the creation of many charter schools, haven’t helped, Orfield argues.

Charter schools tend to be extremely segregated.

Only 8 percent of New York City charter schools are considered multiracial, meaning they had a white enrollment of 14.5 percent or above, the New York City average. “Charter schools take the metro’s segregation to an extreme,” according to the report. “Nearly all charters” in the Bronx and Brooklyn were “intensely segregated” in 2010, meaning they had less than 10 percent white student enrollment….

… Charter schools in urban areas tend to be segregated, in part, because they seek to serve specific low-income communities. Some intentionally cater to one race, with a focus on black culture.

Other top states are also located in the North.

Illinois, Michigan, Maryland and New Jersey followed New York on the most-segregated-schools list.

Segregation may be the least of the problems faced by schools.

I don’t think segregation is the biggest problem schools must face.  In many cases, as charter schools show, segregation is simply the result of a school’s mission to serve a particular type of student.  Furthermore, past attempts at desegregation have often failed to meet their goals but instead created new problems for minority students.  I’ve seen firsthand desegregation attempts that created white flight and left urban schools in worse shape than before.

———

Joy Resmovits, “The Nation’s Most Segregated Schools Aren’t Where You’d Think They’d Be”, Huffington Post, 03/26/201.

July 24, 2014

Loans overtook grants as the main source of college financial aid in 1982

by Grace

In the early 1980s loans begin to exceed grants as the primary form of college financial aid.

20140720.COCLoansHistory2

Figure 3 shows the amount of financial aid provided in each major category since 1980, in constant dollars (institutional grants are excluded, as they are treated as a discount off of tuition). In the early 1980s, federal, state, and private grants were the largest form of financial aid. But beginning in 1982, loans began to outpace grants, and since then they have remained the largest form of aid available to students to help them pay their costs of attending higher education.

The federal government had first stepped up its role in college financial aid in the 1960s.*

… The United States has long had financial aid for students, awarded in different forms (loans, grants or scholarships, government-subsidized jobs on college campuses, and tax benefits) and from different sources (federal government, state governments, higher education institutions, and private entities). The federal government first began provision of broad-based financial aid in the forms of grants and loans to students with the passage of the Higher Education Act of 1965. This Act also had a provision, the State Student Incentive Grant program, which encouraged states to create their own grant programs. These programs, along with the continued expansion of institutionally-funded scholarships, have helped to subsidize the price paid by students for attending college and have also served to lessen the impact of rising “sticker” prices, or the amount charged by universities before any discount is provided.

*The G.I. Bill began offering federal education benefits to veterans in 1944.

———

Geiger, Roger & Heller, Donald. “Financial Trends in Higher Education: The United States” (Working Paper), Peking University Education Review, January 2011.

July 23, 2014

Sarah Lawrence College will rate itself on the value it provides students

by Grace

Sarah Lawrence College has developed a way to assess the value it offers its students.

… The faculty came up with six abilities they think every Sarah Lawrence graduate should have….

  1. Ability to think analytically about the material.
  2. Ability to express ideas effectively through written communication.
  3. Ability to exchange ideas effectively through oral communication.
  4. Ability to bring innovation to the work.
  5. Ability to envisage and carry through a project independently, with appropriate guidance.
  6. Ability to accept and act on critique to improve work.

These measures serve as an antidote to the Obama administration’s upcoming rating system, which will measure things like cost, graduation rates, and salaries of graduates.  Obama’s new system has generated controversy, particularly since poor scores could mean the loss of federal financial aid.

Sarah Lawrence developed a “web-based assessment platform, designed to measure student performance against these critical abilities”.  Advisors meet regularly with students to evaluate their progress.

20140718.COCSarahLawrenceCriticalAbilities
Students can learn if they’re getting “their money’s worth”.

That’s a different measure of the value of an education than, say, student loan debt or earnings after graduation — the sorts of things the Obama administration is considering as part of its ratings plan. Students and parents are right to ask if they’re getting their money’s worth, says the college’s president, Karen Lawrence. After financial aid, the average cost of a Sarah Lawrence education is almost $43,000 a year.

“People are worried about cost,” Lawrence says. “We understand that.”

And they’re worried about getting jobs after graduation. But she says the abilities that the new assessment measures—critical thinking and innovation and collaboration—are the same ones employers say they’re looking for.

I have a feeling every Sarah Lawrence graduate will be rated highly.

The idea behind Sarah Lawrence’s assessment is laudable, but I must say I’m a bit skeptical about the way they measure student performance.  Shouldn’t they have an objective third party doing the assessment?

———

Amy Scott, “What do students actually learn in college?”, Marketplace, April 22, 2014.

July 22, 2014

Ten career paths you may want to avoid

by Grace

A new study released Tuesday by job-search site CareerCast.com, lists the 10 top endangered jobs in the U.S. Using data on 200 jobs from the Bureau of Labor Statistics, CareerCast projected the least promising career paths in terms of future employment growth, income potential and existing unemployment in the job field.

  1. Mail carrier
  2. Farmer
  3. Meter reader
  4. Newspaper reporter
  5. Travel agent
  6. Lumberjack
  7. Flight Attendant
  8. Drill-Press Operator
  9. Printing Worker
  10. Tax Examiner and Collector

“The common theme in these jobs is paper,” says Tony Lee, publisher of CareerCast.

There is simply less demand for the type of work represented by these jobs, in most cases due to technological advances.

Since I have recently been spending many frustrating hours planning my summer vacation, I wish travel agents would make a comeback.  Apparently there is a trend toward a fee-for-service model among travel agents, particularly in the FIT (Flexible Independent Travel) market.  Maybe next time I’m planning a family vacation I’ll seek out a travel agent to make my life easier.

I’m particularly concerned to see that newspaper reporter jobs made this list since I have a son who is an aspiring journalist.  Perhaps the growing proliferation of online news sources will boost job growth in that area.  That may be optimistic thinking, but you can’t blame a mom for hoping.

———

Kathleen Madigan, The 10 Most Endangered Jobs (Or, Why You Are Reading This Online), Wall Street Journal, July 15, 2014.

July 21, 2014

Trends in public school funding

by Grace

After decades of increased public school funding, 2010 saw the beginning of a slight downward trend in per-pupil spending.

20140715.COCPerStudentFunding1

… Adjusting for inflation and growth in student enrollment, spending fell every year from 2010 to 2012, even as costs for health care, pension plans and special education programs continued to rise faster than inflation.1 Urban districts have been particularly hard-hit by the cuts in federal education spending: Nearly 90 percent of big-city school districts spent less per student in 2012 than when the recession ended in 2009.

The recent cuts represent a sharp reversal after decades of rising U.S. education spending. In 1950, American school districts spent, on average, roughly $1,800 per student. Spending has risen nearly every year since then; by 2006-07, the last full school year before the recession, per-student spending was nearly $11,000. (Both figures have been adjusted for inflation.) The long increase reflected a range of factors, among them higher teacher salaries, broader curricular and extracurricular offerings, and, especially in recent years, increased spending on students with disabilities. Another major factor: smaller class sizes. In the 1950s, there were roughly 25 students for every teacher; by 2007, the ratio had fallen to 15.5-to-one.

The latest numbers show that the average student-teacher ratio in public schools is 16-to-one.

20140716.COCStudentTeacherRatios1


Sources of public education funding   —   State: 45%    Local: 45%    Federal: 10%

More details about trends in public school spending can be found in Public Education Finances: 2012, published earlier this year by the U.S. Census Bureau.

———

Ben Casselman, “Public Schools Are Hurting More in the Recovery Than in the Recession”, FiveThirtyEight, June 10, 2014.

July 18, 2014

New York railroad workers will finally contribute to their health insurance

by Grace

At the last minute a strike by Long Island Rail Road workers was averted when they agreed to begin contributing to their health insurance and pensions.

Travelers on the Long Island Rail Road were spared a debilitating midsummer strike on Thursday, when the railroad and its unions reached an agreement three days before a planned walkout….

The unions received raises of 17 percent over six and a half years. But following a national trend in which workers shoulder an increasing share of their health costs, the railroad employees will, for the first time, contribute a portion of their pay, 2 percent, toward their health coverage.

The union had earlier rejected a proposal requiring “employees to contribute 2 percent of regular pay toward health care costs and pensions”.  This seemed out of touch with the reality of what most of their riders have to deal with.

In the private sector, the average percent of health premium paid by employees is 16% for individual coverage and 27% for family coverage. 

A talk show host who is usually on the side of unions had scornfully remarked that replacement workers could easily be found for these plum jobs that consisted mainly of “punching tickets”.

The New York Post wrote that the average LIRR worker makes $87,182 annually. Moreover, a third of the unionized workers make over $100,000. They get free health care and two pensions, but still, they want more.

Related:  “Quick Links – Public pension problems round-up” (Cost of College)

———

Matt Flegenheimer, “L.I.R.R. Strike Is Averted After Cuomo Intervenes in Labor Talks”, New York Times, July 17, 2014.

Maria Vultaggio, “LIRR Strike 2014: Long Island Commuters And Conductors React To Possible Walkout”, International Business Times, July 14 2014.

July 17, 2014

Neurotics are seen as more valuable in the workplace

by Grace

This seems like another case where low expectations could work in your favor.  Sometimes it makes sense to demonstrate less confidence in the workplace.

Research suggests that the more anxious and withdrawn among us tend to gain respect over time at work, while more outwardly confident extroverts lose some of their initial esteem.

To some degree, the research shows the value of creating low expectations, said the study’s lead author, Corinne Bendersky, an associate professor at the Anderson School of Management of the University of California, Los Angeles.

“To the extent that people can channel their inner Woody Allen — and act more neurotic — they will lower peer expectations,” Dr. Bendersky said. The research defined neurotics as people who express anxiety, are withdrawn or appear emotionally volatile.

The research, published in April 2013 in the Academy of Management Journal, shows that, on the whole, neurotics are seen as working harder while some extroverts appear to their peers to coast; that is the case even if the neurotics and extroverts make similar work contributions.

I’ve seen this happen, although sometimes it seems to be because the extroverts are viewed as a bit obnoxious.

———

Matt Richtelfeb, “That Neurotic on the Team? Give Him Time”, New York Times, February 1, 2014.

Follow

Get every new post delivered to your Inbox.

Join 168 other followers

%d bloggers like this: