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Latest on EIULs July 19, 2018

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income.
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It has been 20 years since the Equity Universal Life Insurance product was introduced. The critics have been warning about the impending implosions of the product since the day it was introduced. Yet, none of that gloom and doom has even come close to coming true. We have been through a major recession, “to big to fail” banks, 2 major stock market swoons, real estate implosion [where were the critics on that one?], derivatives issues, and of course many good years. Through it all, the EIUL has not only survived but thrived. The growth rate has been phenomenal.

Even more important is that the product is producing exactly how it was designed too. The internal rate of return on the Minnesota Life product and the North American product [the best two in my opinion over the last 10+ years], has been 8%+. This has been accomplished in what has been a terrible interest rate environment since 2008. Cap rates have gone up and come back down, yet the overall return has been solid overall.

Folks I put into an EIUL over the last 15 years have had twice the return than the average returns of an Mutual Fund. Dalbar Inc. continues to demonstrate serious underperformance from folks in mutual funds whether inside an 401K/IRA wrapper or outside the wrapper. Note that his continues in light of almost 10 years of up years in the stock market. What is it going to look like when we have the inevitable down draft in the stock market?

I was recently asked about the future of EIULs. I think the future will look closely like the past 20 years. Overperformance compared to the government/Wall Street pushed retirement plan. Significant tax savings during your retirement years. Protection against sequence of return risk.

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Keeping it simple; What should be your main concerns on retirement funding? March 23, 2018

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, paradigm shift, Retirement Income.
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The finance world is famous for how complicated they want to make the analysis. Warren Buffett is famous for saying you only need basic math and a few metrics to make investment decisions.
The more I read about decision making, the more I lean toward Warren.

Currently, I am reading

    Thinking in Bets: Making Smarter Decisions When You Don’t Have All The Facts

When I get done, I will post a book review.

But for now, given the current financial environment, here are the three concerns you should have on retirement funding:

1. Sequence of Return. Simply put this is the #1 stealer of your retirement income.
2. Taxes. Yes taxes have gone down for some. But over your lifetime it will be variable, sometimes going up and sometimes going down. How about just reduce or eliminate that risk altogether.
3. Work. With corporations rarely demonstrating loyalty or rationality with its employees, do you really want to depend on their generosity for your retirement?

So there you have it. Keep it simple and solve those issues as best you can.

More and more large corporations using annuities for their pension benefits! February 27, 2018

Posted by shaferfinancial in Uncategorized.
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Just a quick note. CBS bought a group annuity to offset its pension plan risk. The amount of the offset was $800MM representing 20% of its pension obligations. This is not an isolated case as more and more large corporations are turning to insurance products to manage their obligations. I have written before about the use of Life Insurance [COLI] for asset protection by large corporations a practice that goes back 100 years.

So why do financial planners not encourage their clients to offset risk by doing the same? After all large corporations have much less sequence of return risk than do individuals.

More and more people are now realizing that the financial planning industry is in bed with Wall Street.

Interesting read on the stock market and Berkshire Hathaway February 27, 2018

Posted by shaferfinancial in Uncategorized.
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This is a long, but interesting read centered on Berkshire Hathaway. It mimic’s some of my issues with passively managed mutual funds: Berkshire

On the stock market movement February 13, 2018

Posted by shaferfinancial in Uncategorized.
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Some big movements down and then some up leaves the market down over the last couple weeks. Probably just a correction, but corporate earnings are still strong so don’t expect a full out panic. My dividends are still strong and Berkshire holding strong at this point. Clients are all protected from huge downdrafts inside their EIULs. So, no problem sleeping here!

Efficient Market Hypothesis and its Discontents II October 7, 2017

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In October of 2009 I wrote a post titled Efficient Market Theory and its Discontents.

Here is a sample:

Regular readers know that I am not a believer in the efficient market theory.  Facts are, I am a social scientist and understand the huge amount of data that tells us we generally act upon our emotions and are not rational, especially in times of stress.  The percentage of folks that can remain completely rational at all times is extremely small.

For me it all started with reading Warren Buffett, but he is far from the only EMT discontent.  Unfortunately, the media, the financial planning world, and most of the internet media are big  fans of EMT and its associated strategies.  What that has led to is the vast majority of folks losing out on a once in an investors lifetime opportunity.  Because so many people were either panicking or convinced that their asset allocation, mutual fund, strategy was solid the vast amount of people missed it.  What is it?  If you had been paying attention you could have bought solid companies at rock bottom prices back in March and April.  Want examples?  General Electric went below $7 [currently at $16.16].  Wells Fargo below $9 [currently $29.26].   Goldman Sacks below $60 [currently at $190.48] and Berkshire Hathaway went down below $73,000 [currently at $100,400].  Apple below $80 [currently $190.25].

Now my point isn’t to play Monday Morning Quarterback with stock picking.  Only to point out that if you had followed Warren Buffett’s investing theories instead of some academic’s or what Wall Street wants you to believe in, there really were “once in a investing lifetime” opportunities.  And if you were following those bobble heads or mutual fund sales folks or financial planners or any of the other so called experts you missed it.

My only regret was that I was not more liquid in order to buy more than I did.

So I thought an update would be interesting.  Note I didn’t pick obscure, small growth companies, but big, well known mature companies that most people were talking about at that time.

 

General Electric currently sits at $24.39 a total return of 348% plus 8 years of dividends

Apple currently sits at $155.30 a split adjusted return of 634% plus 8 years of dividends

Wells Fargo sits at $55.58, a total return of 615% plus 8 years of dividends

Goldman Sacks sits at $246.10, a total return of 410%, plus 8 years of dividends

Berkshire Hathaway sits at $281,000 a total return of 385%.

Now here is the kicker.  I didn’t completely follow my own advice.  Yes, I bought more Berkshire Hathaway and some Goldman Sacks.  But, I failed to buy Apple, even thought I loved the company and had money and even came within seconds of clicking on a buy bottom for my brokerage [My biggest regret yet].   Now I bought several other stocks that did really well, and 2 that didn’t.  But, I knew they were more risky than the ones listed above.

So here is the bottom line.  The market wasn’t rationally evaluating those companies in 2007.  It was reacting to the fear of the day.  It might not be rationally evaluating the companies now.  Most people can’t emotionally look at the market and not act in the face of fear or excitement [of major movements up].  So, the result is fear pushes people to sell when stocks are dropping and excitement causes people to buy when the market is seemingly going endlessly up causing these large movements up and down.  This happens to professionals and amateurs alike.  It happens to me, even though I am conscious of it.  It happens to folks that invest in mutual funds the same way as if they were in individual stocks.  Right now, people are buying into funds at record pace.  This probably means we are at the end of a bull market.

Meanwhile, myself and others who have bought Equity Index life insurance have had solid returns over the last 10 years [around 8%] and since we aren’t relegated to the whims of the market sleep well and don’t react to fear or excitement in the ways others with full market exposure do. EIULs is an effective strategy for us because it keeps us from reacting the way our brain insists we do in the face of fear or excitement.

 

 

 

 

 

Record retail buying of stocks September 7, 2017

Posted by shaferfinancial in Uncategorized.
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2017 has seen impressive retail [mostly through mutual funds] buying of equities. 2017 has also seen significant insider selling of stocks. Want to bet how this comes out?

Energy stocks are actually the opposite with retail selling and insider buying.

Dangerous times in the market! May 26, 2017

Posted by shaferfinancial in Finance, mutual funds, Retirement Income.
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Just wanted to put out my thoughts here. We are in a serious transition period that adds tremendous risk to all markets. We seeing more and more irrational market movements. Interest rates are being pushed up gradually, companies are reporting mixed results. Oil markets are running off of only emotions, forgetting fundamentals. Real estate and the the equity markets have both had fairly long run-ups by historical standards. And politically, there is huge risk with a new untested leader.

Now is the time to be very careful if you have market driven financial products. If you are planning to retire anytime soon, protect yourself. If you can’t emotionally deal with huge losses in the equity market, move to products that protect principal.

Frankly, I am not good at “timing” market issues and usually keep my money at work. But I have plenty of time to recover if the market goes south and have a good amount in my EIUL which won’t go south. Additionally, since half my stock portfolio is in Berkshire, which performs best in down markets, I feel safe. My oil stocks have already done poorly for the last couple years, so no more damage can be done to them.

Protect yourselves going into the summer.

There is more than 1 right answer! May 2, 2017

Posted by shaferfinancial in Finance, mutual funds, paradigm shift, Retirement Income.
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I recently pulled out and wore an old t-shirt. It was a t-shirt from an old friend who is now deceased. He was a jeweler who made fine items for folks. The ultra-wealthy from all over the east would come to buy his wares. He was a mountain of a man with huge hands. I was always amazed that those club hands could make such fine jewelry. When he walked the beach he lived on, most people thought he was some biker and stayed away from him. He like it that way.

On the back of the t-shirt is his saying: It’s better to be a well known drunk than an anonymous alcoholic.

You can imagine the looks I got when I took my son to the playground wearing this t-shirt. 🙂
Anyway it has spent way to much time tucked into my closet and now I just don’t care what looks I get.

But the saying on the t-shirt it speaks to perspective. He lived the life of a rich and somewhat famous person and pretty much did what he wanted to do. While 12 step programs are all about conforming to society’s norms around substance abuse.

Where is this all going? Well most of us conform to the norms of society in our everyday life. We go about our business never really questioning the reality taught to us by those in power. Now I am not saying that we should all go around drinking excessively and doing what we want without regards to others. But I am saying that there are always alternative ways of thinking that are just as valuable as what we have been taught.

I dedicate my life to helping people understand that in the financial world. I am grateful that so many people come to understand what I am teaching them and have found financial success as a result.

As my son is now a freshman in HS, we often have discussions about the world. I find myself having to play “devil’s advocate” with some of his now strongly held beliefs. I hope he will learn from our discussions and not be so quick to buy into what is being told to him whether it is political, financial or the propaganda from the medical system about what is good for him and what is not. I hope he learns to be a critical thinker. He will need to be.

Wall Street invents another way to beat you with “Robo-Advisors” April 6, 2017

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income.
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Wall Street has always put their profits ahead of the people they advise on stock buying.
This, of course, should not be shocking. But, even I am amazed at how inventive they have become. So called “Robo-Advisors,” or using computers instead of human advisors to help folks make decisions on their market securities are being introduced. These “Robo-Advisors” are just computer programs that attempt to pick up sensitive/hidden market movements and place trades for folks. Now, most people know that Wall Street already employs computers on their own accounts [so called high-frequency trading] and these have allowed Wall Street firms to make huge profits at all of our expense. Now, they are saying that they will employ computers on your behalf. Does anyone really think that they will organize these computers to beat the ones they already have working for their own accounts?

Or is this just another marketing strategy? Retail accounts for most of these Wall Street firms are huge money makers and these Wall Street firms have generally moved to prioritizing getting company 401ks under their direction away from trying to talk to individuals. Of course once they control your companies retirement accounts they put a “representative” in charge of talking to you with cookie cutter advice. These representative job is really to just get people happy with what the marketing is, at least enough to not complain.

Ever ask yourself why it is you have so little control over “your” 401K? Ever ask yourself why you can’t access your accounts, move them, take money out when you want and need to? Ever ask yourself why the investment choices are so minimal? Wouldn’t it be great if you could control $Billions of dollars of other peoples money with those people having so little ability to wrest control of their money away from you, pretty much having to leave their job to do it? And if you were in this position of controlling all this money, why you would suddenly stop putting your own trading accounts ahead of this other money? You earn fees on “managing” this money no matter how it does in the market. In fact, you advise people to just buy index funds and ride the out any market, which if they listen to you only stabilizes these earned fees.

Let me add all this up for you:
1. Wall Street has always put its account ahead of yours when it comes to making profitable trades and stock owning strategies; and
2. Their main concern has always been how best to market to you; and
3. They, along with the US Government, have designed a system that steals control of your “retirement accounts” from you to them. Really the only way most people can get control of their 401Ks is to leave the company they are working for;
4. Their best advice is to not do anything, just leave the thinking to them; and
5. They never are honest about the final results of this system.

So this is the system you want to be involved in? Is that match really worth it?

Now they are telling you that they will employ computer programs that will increase your returns and make you a successful investor. And these computers will in direct competition with the ones already employed on their behalf.  But, don’t worry.

Really???????