16 August 2019 FT — Articles to Read

16 August 2019


Question: According to MSN: Money, how should one protect themselves from financial ruin in retirement?


GE shares tumble after Madoff investigator alleges $38bn fraud – Pg. 1

  • An accounting fraud “bigger than Enron and WorldCom combined” is hidden inside General Electric, according to the financial investigator who sounded the first alarms over Bernard Madoff’s Ponzi scheme
  • GE, which dismissed the claims as meritless, saw its shares fall as much as 15% after publication…
  • Mr Markopolos is known for his – largely unheeded – warnings on the Madoff Ponzi scheme in the years before it imploded in 2008
  • GE, once the most valuable US company, has been in turmoil for three years
  • The Markopolos report argues GE has understated liabilities in its insurance business, says its cash situation is worse than disclosed in filings and claims it has not properly accounted for its acquisition of a stake in oilfield services provider Baker Hughes, completed in 2017


Flight for safety sends yield on 30-year US Treasuries below 2% for first time – Pg. 11

  • A sharp rally in government bonds set fresh records yesterday, with the yield on 30-year US government bonds falling below 2% for the first time as investors sought safety amid growing fears over the global economy and renewed trade tensions
  • Fears of a global downturn have driven traders to dump riskier assets such as stocks and crude oil and move into perceived haven assets, including bonds
  • …the 30-year US Treasury bond yield dropped to as low as 1.96%, its lowest level on records that go back to the 1970s and the first time it has fallen below 2%


Governance concerns weight on WeWork IPO – Pg. 13

  • WeWork is facing a chorus of corporate governance concerns after disclosing details of co-founder Adam Neumann’s share sales, transactions with the company and plan to retain control after it goes public
  • Some investors saw the lack of protections for investors as a top-of-the-market sign – a “gov-lite” governance structure akin to the sharp rise in “cov-lite” loans, debt with fewer covenants protecting lenders, which preceded previous market reversals
  • “This is the third big IPO [after Lyft and Pinterest] where the supervoting shares are 20 to one…”
  • WeWork’s board defies norms of including independent directors, ….
  • The board also flies in the face of recent corporate governance convention by including no women
  • The filing also confirmed that WeWork has been making lease payments to four properties in which Mr Neumann has an interest


Answer: (1) Know how you want to live in retirement (Prof Note: I say this in class ALL the time; start at the end and work backwards.); (2) Do away with significant expenses ahead of time; (3) Conduct a self-audit (Prof Note: Develop your own Financial Statements so you know where you are; then develop pro forma statements demonstrating how you need to financially manage your journey); (4) Maintain a detailed understanding of your cash flow; (5) Budget; (6) Maintain a six-month emergency fund (Prof Note: I continue to disagree with this!  Never spend capital!  Have a (multiple) side hustles to carry one through); (7) Diversify your income sources (Prof Note: See #6); (8) Do not overlook tax requirements when budgeting for retirement; (9) Maintain a healthy credit score; (10) Expect to live longer; (11) Insure yourself for longevity; (12) Reduce risk exposure in your retirement accounts (Prof Note: So much for my believe in GE!  Mark R was right!); (13) Maintain a high level of personal health; (14) Have proper health insurance in place; (15) Do the math on long-term care; (16) Stop supporting other people; (17) Find a trusted adviser; (18) Create a go-to cash account for larger expenses; (19) Separate your retirement funds into two distribution strategies; (20) Invest discretionary funds more aggressively; (21) Do not be too conservative; (22) Get a grip on social security; (23) Practice for one year prior to retirement; (24) Be flexible