Investing for retirement

The Anti Free LunchBob Black Life401.com

Three parts1. Bad and Ugly 2. Tools3. Portfolio

Sad but true

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 outcomes• How funds come and go• Mutual fund survivorship ( Review of Finance )• 20% Lower when dropped funds are included• Mutual fund broker commission • 2.3 % – 5.75%• Style (The herd)• Stock picking letters ( Like a tout at the track )

Reversion to the mean

• Horace Secrist 1933

• Harold Hotelling

Real interest rates

 

Interest and inflation(1970 to 1980 105.8%)

Inflation in Weimar Republic

Fixed Income Securities

Banks - Checking, CDs, Safety Box TIPS – Insurance not a good investment Everbank Foreign Currency CD everbank.com

Foreign Bonds Bond Funds 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

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 income• Pay a good dividend• Basis is reduced by: dividend-income • Usually mid stream pipeline• Tax deferred• Must be inherited to avoid big tax hit

Gold• Does not keep up with inflation

• Costs to own

• Not productive

• Is insurance against rapid inflation

Why buy stocks?

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 2

• ETFs Good Tax Efficient• Low cost• Do as well as the market

• Bad Not managed

• Smart Beta ETFs

• Good Tax Efficient• Low cost• May 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

Diverse portfolio

• 53% Broad US stock market:• 8 REITs • 3% Royalty Trusts• 20% International• 12% Fixed income • 3% limited Partnerships • 1% Gold and Silver

Retirement Assent Allocation

No debt: House, car etc. Emergency Fund – Three months 20-40% Fixed when rates are market rates 50-70% Equities 5-15% 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