1st: Most people purchase them inside a tax-deferred wrapper like 401Ks or IRAs. They are sold on the idea that they save money paid for taxes. This is demonstrably wrong. When you purchase mutual funds inside a 401K you are not avoiding taxes just deferring them to later. So instead of paying income tax on the income you receive you reduce it based on how much you put into your 401K. Most people hope there will be gains inside their retirement account. Indeed over the long run there should be. Here is the problem, the taxes you saved are based on how much you put in, while the taxes you pay will be based on how much you take out including the gains. So if you put in $250,000 over a lifetime and take out $500,000 during retirement you are saving $250,000 times your marginal tax level and paying $500,000 times your marginal tax level. You can see that the result is paying considerable more than you save. Bottom line this scheme does nothing but increase your taxes. A great deal for the government, a bad deal for you. And that doesn’t count any penalties or taxes you pay if you don’t follow their rules on withdrawals.

2nd: As many of you have discovered recently, market risk is understated by most who push this retirement scheme. That is severe market downturns are very dangerous to folks with limited time to invest. If you have an unlimited time line on investing, then there is always time to make up for the severe downdrafts that are always happening in the market. However, as your time line to retirement and using these funds go under 10 years, the risk you take on goes up dramatically. Imagine retiring anytime in the last 15 years dependent upon market returns! These folks simply have no where to turn. There is not enough time to make up for over a decade of real market losses. Many of these people have had to downsize their expected retirement income by over 50%. And the scary part is this isn’t the result of a once in a century bad market. No, these types of markets are as predictable as the sun setting. Since WWII you have the 1960s and early 1970s, you have the early 1980s, and the first decade of the new century. Those are all examples from the life span of current retirees. Try to find 25-30 years in there where there wasn’t significant market downturns? You can’t. This means that there is a certainty that you will experience this market behavior during your retirement years too! Imagine saving your whole life and a couple of years before retirement you have accumulated $1M. You think you can take $50K per year from your accounts during retirement and be pretty assured of not running out of money. But then on the eve of your retirement that $1M turns into $700,000. So now you are down to $35K per year. And then a decade of sideways movement turns your once comfortable nest egg into something that might last you to 80 if you really skimp or maybe not. This is called sequence of return risk and no manner of asset allocation advice will avoid this issue.

3rd: Expenses. Did you know that most of the major mutual fund management companies raised the internal expenses in their mutual funds during the great recession of 2008-09? Why did they do this? Because people were pulling out of mutual funds and they needed to maintain their profits. So while their customers were losing in their 401Ks, the companies did their share by taking more out of the pot! You see, not only do the companies not take on the market risk with you, but they think they bear no responsibility for the results of people investing with them. All that matters in their eyes are the companies profits. And these are the same people who are giving you advice to stay in mutual funds and what a great way to invest for retirement mutual funds are!

4th: Admittedly, this is a personal pet peeve. Their rules…..your money. Take your money before age 59 1/2 and you get penalized. I even had a client whose 401K was kept from him as long as he worked at the company or 59 1/2!!!! Don’t take the money in time, more penalties. Save too much…no can’t do that.

My personal journey had me realize all this over 10 years ago. It took me a few years to find a suitable replacement strategy and a few more years to divest myself of those pesky mutual funds. It was all worth it. And by the way since I have accomplished this my real returns have skyrocketed compared to mutual funds.

As many of my readers understand I am very open about what I am doing now and in fact starting selling one of the strategies [EIULs] I found works well. Many of my clients from both the Shafer Wealth Academy and EIULs have similar stories to tell about their awakening from the propaganda of Wall Street and the US Government. Other’s are not ready yet to open up their minds to the reality of the failure of mutual funds and 401Ks. Interestingly, Fidelity, a large mutual fund company, just released the average 401K level of its customers. $67,000. How long will $67,000 last in retirement?

It’s last quarter was the best ever with $137M in operating profits compared to $82M the third quarter of last year. Net income was $.98 per unit versus $.51 last year. It has $198M in cash available along with around $700M in unused credit. This last quarter’s profit was accomplished with a 8% decrease in gasoline movement [4% increase in Diesel and Jet Fuel]. All capital projects are progressing as proposed. There are a couple of new projects being discussed at this time. MMP has plenty of available cash as well as credit to make significant capital improvements if suitable projects are found.

In short, MMP is in very good shape going forward. My current yield to cost is approaching 11%. Unfortunately, this stock is no bargain at $63.98. I am more than satisfied with my investment in MMP, but as they say “timing is everything,” so I will be reticent to add to my holdings at the current price. I do reinvest dividends though so will end up with more as we go forward.

Buffett apparently thinks these stocks offer great value.
Once again he is positioning Berkshire for a great next decade or two!

The price of Berkshire is a raging value itself at this time.

This is the 11th year I have been investing in HCN. The strategy employed over the last 5-7 years is to move away from skilled nursing into medical office buildings, senior housing, and campus complexes with the whole medical facilities range [housing, assisted living, skilled nursing, medical office building, acute care hospitals]. Currently they are down to 27% skilled nursing and up to 18% MOBs and 46% in senior housing [either triple net leases or operating]. Geographically they are concentrated on the two coasts.

Currently the dividend yield to cost is 5.9%. My personal yield to cost is over 12%. This is a strong performer and in my opinion will continue to deliver great performance with the demographic tail wind pushing it along.

I recently counseled a person to simply write a $10,000 check to a relative trying to sell them an EIUL product and let me structure the products correctly using a good performing policy. I calculated that this could save this person several hundred thousand dollars over her lifetime. This was done tongue-in-cheek, but really if you want to help out a relative limit your losses!

Bottom line, despite the current anger against all elites, some people really do have a level of experience and a moral compass such that you want them on your team. Whether it is investment real estate, equities or life insurance, buy from someone that knows what they are doing.

So it may be of interest to my readers Warren’s latest interview by Charlie Rose. In it he states that most of the businesses he owns are having banner years [exceptions are the home building, real estate businesses]. He sees no signs of falling demand for many of his major holdings. As to Berkshire Hathaway, he believes it is a screaming “buy” well below intrinsic value and has instituted the process to buy back shares at up to 10% above book value. Watching the market over the last few days I would guess he is buying back some shares. He has over $20B in cash that he can use to do this! He also states he has bought over $8B in additional equities this year, $4B in the last quarter. So who is right? Are stocks a screaming value now or are they on the precipice of a major drop? Could be both are right. But if you think long term and not short term, you are probably best served by listening to the greatest investor of our generation and not talking head economist on the TV IMHO.

Here is the link to the interview: Buffett

You tell me who you believe?

What to do? Well he has told the market that he will repurchase stock at up to 10% above book value [Somewhere around $109,000 per A share]. In his statement he basically says that the stock price is a screaming buy according to his conservative analysis.

Since the announcement the stock has been going up [Now over $110,000] just like it did in 1999 when he made a similar announcement. But what he has done is simply put a floor on pricing for the time being.

Buffett could easily buy $20B of his stock if the price warrants it. That’s alot. And every month Berkshire produces over $1B more in cash!

Are people out there really willing to bet against the skills of Buffet in valuing companies and making good deals?