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Short note on Bull Market August 21, 2018

Posted by shaferfinancial in Uncategorized.
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Tomorrow, August 22nd, the bull market will officially be the longest ever in history.
While this event means nothing, you have to realize the market will go down at some point in the near future. Last two downdrafts were both over 50%. Given the length and amount of this bull market, you would think that when it does happen, it will be significant.

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More Evidence of Poor Investor Performance July 24, 2018

Posted by shaferfinancial in Finance, mutual funds, Uncategorized.
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Usually, at least once a year, I post recent Dalbar, Inc. results for investor mutual fund performance.  It does get redundant to keep posting the same underperformance for investors.  The vast majority of folks will continue to ignore these results in some sort of “not me” denial of the obvious.

To break things up, here is a bar chart from JP Morgan. They include in their average investor bar the latest Dalbar results [2.6%].  Note which is the second lowest!!

What this chart is pointing out is that the average American who invests in mutual funds inside their 401K/403B/IRA and their home [80% of average American wealth resides in their home] have barely gotten over 3% returns over the last 20 years.  And they have the majority of their wealth in places that are hard to get to without penalties.  There are substantial tax penalties when drawing from a 401K even if you are over 59 1/2,  You have to pay income tax [both federal and state] on those withdrawals. [Roth’s you do not.] And real estate you either have to sell your home and pay a realtor or you have to mortgage your home and pay interest to access your money.

So, not only are Americans getting a very small return, but they have to pay for the right to access their money from these places. And when the average American really needs to get at these funds, like after being laid off or getting sick, the penalties are high and you probably won’t get a mortgage without a job.

Does this really make financial sense?

Feeling more secure now?

 

 

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.

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

Posted by shaferfinancial in Uncategorized.
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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.