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Investing for retirement
The Anti Free LunchBob Black Life401.com
Three parts1. Bad and Ugly 2. Tools3. Portfolio
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 )
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
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