investing for retirement the anti free lunch. the bad and the ugly broker conflict annuities...
TRANSCRIPT
Investing for retirement
The Anti Free Lunch
The Bad and The Ugly
Broker Conflict Annuities Churning Pushing under writings Pump and dump Not fiduciaries
Inflation Free lunch Manipulation Black Pools Ponzi
Mutual fund Analysis by Forbes
Non-Taxable Account Taxable Account
Expense Ratio .90% Expense Ratio .90%
Transaction Costs 1.44% Transaction Costs 1.44%
Cash Drag .83% Cash Drag .83%–
Tax Cost 1.00%
Total Costs 3.17% Total Costs 4.17%
The Bad and the Ugly 2
Mutual fund success 30%How clients drive bad outcomesHow funds come and goMutual fund survivorship ( Review of Finance )
20% Lower when dropped funds are includedMutual fund broker commission
4.5 % – 5.75%Stock picking letters ( Like a tout at the track )
Advisor and Broker Knowledge
Advisors Asset Allocation Style – Sector rotation
Brokers www.finra.org/Brokercheck The company line What makes money for them Why are they dealing with you?
Who are the Lions?
Treasury Federal Reserve Pension Funds Mutual Funds Insurance Companies Hedge Funds Brokers Banks
Being a Mouse with Lions
Real interest rates
Interest and inflation(1970 to 1980 105.8%)
Inflation in Weimar Republic
Stable Interest chart
Fixed Income Securities
Banks - Checking, CDs, Safety Box TIPS – Insurance not a good
investment Everbank Foreign Currency CD
everbank.com
Foreign Bonds Corporate Bonds in IRA
(zionsdirect.com) Tax Free Municipal Bonds or Funds
Bond Fundamentals
Maturity date
Yield to maturity
Discount / Premium
Callable
Taxable
Revenue source
http://screener.finance.yahoo.com/bonds.html
Alternate fixed Income
• Closed End Funds cefa.com
• Royalty Trusts• Utility stocks• REITs• MLPs• Diversify and Ladder
REITs
It represents ownership of property Depreciation Tax advantage Use all of the stock tools to pick Look at their properties
Royalty Trusts
99% Oil and Gas SDT,CRT,SBR,SJT,BPT,CHKR,PER,ROYT
Not actively managed Earnings distributed Depletion tax advantage Will run out Think of it as an energy cost
insurance policy
LPs
Nearly all oil related Use deprecation to show little incomePay a good dividendBasis is reduced by: dividend-income Usually mid stream pipelineTax deferredMust be inherited to avoid big tax hit
Why buy stocks?
Company Fundamentals - Stocks
Income year and quarter – Sustainable? GS&A Growth
Balance Sheet Inventory - Square root rule Debt Sneaky debt items Quick ratio
Company Fundamentals – Stocks 2
Other Yahoo items In depth at www.sec.gov
Litigation Pension liability Auditor Qualification of opinion Derivatives Capital leases Related party transactions
Company Technical Analysis
Moving average Look at 50 day and 200 day Breakout of 50 above 200 is a buy
signal MACD and RSI
Positive are buy signals Volume Stock Technical Analysis web site
www.stockta.com
Buying stocks
Check the market for direction Find candidates
Things you like Graham Variations Candidates from ETFs Low P/S, P/E, P/B
Do Fundamental analysis Use Technical Analysis for timing Diversify
Indirect ways to own stocks
Mutual funds Good Managed
Bad Lower outcomes, tax
Closed end funds (Also works for bonds)Good Managed
Buy at a discount
Not driven by their owners
Tax Efficient
Bad Sell at a discount
Indirect ways to own stocks 2ETFs Good Tax Efficient
Low costDo as well as the market
Bad Not managed
Smart Beta ETFsGood Tax Efficient
Low costMay do better than the market
Bad Added risk of the model
AAII Recommended ETF Portfolio
As of June 30, 2014 Weight YTD 2013 Expense
Guggenheim S&P equal weight 500 RSP 40% 8.4 35.6 .40
Guggenheim MidCap 400 Pure value RFV 20% 6.5 38.3 .35
Guggenheim SmallCap 600 Pure Value RZV 20% 2.9 45.1 .35
iShares MSCI Frontier 100 FM 10% 9.9 25.6 .79
Vanguard REIT index VNQ 10% 17.7 2.4 .10
Performance 100% 7.7 33.7
For Comparison S&P 500 SPY 100% 7.1 32.2 .09
Options Put is an option to sell
Use Puts as a way of buying Never sell a put if you do not want to own
the stock Buy puts on sinking ships
Call is an option to buy Sell covered call for income Buy a call in place of stock for short term
gains Use both for Pending major disruption Opportunistic
FOREX www.forex.com
Fastest way to make and loose money
Trillions change hands every day Can be irrational both good and
bad Use Vegas money not Investment
money
Gold
• Does not keep up with inflation
• Costs to own
• Not productive
• Is insurance against rapid inflation
Assent Allocation
No debt: House, car etc. Emergency Fund – Three months 20-40% Fixed when rates are market
rates 50-70% Equities 5-10% Specialties
REITs, Closed end Funds, Royalty Trusts 0-2% Gambles Do not have blinders
Risk
Civilization Collapses -Guns, ammunition and food
Inflation – Commodities, foreign stocks and bonds, manufacture of things that will appreciate and short term securities
Deflation - Longer term bonds, money and not Commodities
Expropriation – Investments outside of the US Formerly only a risk in third world countries
Rules
Understand it or don’t do it Know the source of the money Be bold when others are fearful
and be fearful when others are bold
Never give a Broker control Use only FINRA Brokers and SEC
Advisors Do not buy Annuities