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Lot’s of time to think and muse on a variety of topics May 5, 2020

Posted by shaferfinancial in Finance, Mutual Funds for Retirement, Retirement Income.
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I have had a lot of time to read, think, muse of a variety of topics. I just finished a book by Susan Orlean called The Orchid Thief

I loved her writing and found this section on Florida really interesting:

Nothing seems hard or permanent; everything is always changing or washing away. Transition and mutation merge into each other, a fusion of wetness and dryness, unruliness and orderliness, nature and artifice.

Although this was a great description of the state of Florida, I think it also perfectly sums up the finance world. Probably my biggest gripe with the financial planning world, is they try to convince people the financial world can be made orderly and understandable. They try to tell you that their strategies control risk or even in many cases eliminate risk. Just let them manage your money and all will be well. But, in my opinion, nothing seems hard or permanent in the financial world, everything is always changing or washing away. Transition and mutation do merge into each other; unruliness and orderliness mix in weird unpredictable ways.

Instead should we not admit to lacking the ability to predict, to control (risk), to not know when we have unruliness or orderliness and what that means? Are there really a class of individuals that can know the meaning of all the above?

Last year my wife had breast cancer. My business suffered because I suffered. This year it is an unruly virus creating fear and uncertainty. As my son pointed out, the numbers (cancer survivor numbers) make him feel like he had some control over an event that was impossible to process. I find myself digging into Covid 19 numbers now for the same reason. But the numbers are an illusion of control. Just like those pretty charts the financial planners use and the illustrations I use. They may make you feel better, but reality always has plans for you.

The pubic health officials are going through the same awakening. Their models, based on their understanding of how a virus infection spreads, are just an illusion. They don’t seem to get this. Funny, how from week to week, their models need to be changed and give out widely different accounts. Then when reality doesn’t appear to be concerned with their models, they will recalculate again and again, never getting it right. Yet, we are expected to bend to their model’s version of reality instead of what our senses are telling us.

Transition and mutation merge into each other, a fusion of wetness and dryness, unruliness and orderliness, nature and artifice.

Why I prefer Minnesota Life EIULs…… August 8, 2019

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income.
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I often get asked why I prefer Minnesota Life EIULs.
There are many reasons:
1. Comdex of 95, meaning it is in the top 5% of life insurers with regards to financial stability
2. Past performance is #1 among EIULs.

But there is another reason. I have included a clip from an e-mail I sent to a client today.
Obviously I have stripped any personal identifiers from it.

ML is raising the cap rate on the blended option to 15%.
It also added an uncapped low volatility S&P 500 option to the Eclipse. This was an additional option for the Orion, their latest EIUL product last year and they also added it to most of their existing EIULs at the same time even if you purchased it years ago like you did. That option will now have a 90% participation rate, meaning that you multiple what the index does times .9. This option demonstrates the highest 28 year historical returns of all the options. (Blended is #2).

Finally, I’m not sure if you are aware, but Minn. Life added a bonus onto its EIULs after year 10 several years ago. Again, they added it onto all their existing EIULs even if you bought years ago. That bonus looks at the total interest credits from the 10 years previous years and multiplies it by .01. Crudely calculated this will add about .8% onto the return at your 11 year anniversary because your overall return average is right at 8%.

So, in short, your existing policies have been improved since you bought it and are poised to take off.

I think the uncapped option with the 90% participation rate is one to consider seriously. If we have a market index break down, history suggests that we have rapid increases after that. Since you won’t share in any index downward movement, but will get the benefit of its return that can supercharge the no cap option. Usually the more dramatic the downturn, the higher the following years returns are.

The takeaway from this note to a client is that even after purchasing, Minnesota Life added on several positive options for their existing clients. Something no other company does. Another interesting take away is that this client has averaged 8% over 9 1/2 years of ownership. I find that to be about average for folks that have owned their policies over 5 years.

Minnesota Life continues to be my go to company.

Just for fun, I looked at the 10 year average return for the S&P 500 with dividends reinvested. It was 6.8%. And that doesn’t take into account the large effect that negative numbers do to your overall total cash. In this case, since there have been only 2 negative years in the last 10 (-6.3% and -.7%) the straight index hasn’t been as affected by negative numbers as it usually is, but it’s still returning 1.2% less.

But people continue to believe in 401Ks funded with mutual funds that are pushed by the Financial Planning industry. Next post will be an explanation of why.

On the Misbehavior of Elites/Corporations March 20, 2019

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income, trust.
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Last month a couple of insurance companies, ones that I don’t do business with, added new EIUL products. Both of these products are examples of companies putting out products that are not only inferior to their competition, but goes against the benefits of owning an EIUL in key areas. I am always surprised when things like this happen. It’s like back in 2004 or so when I was in the mortgage business and mortgage companies started to put out the pick-a-pay mortgages with teaser rates that lasted 3 months so they could get people qualified for property they couldn’t afford. I wonder why they would do something so harmful to consumers and would give the whole industry a black eye.

But, then I remembered there are always these folks out there. Ones that are just predatory by nature. They act the way they do because they are pretty sure there will be no repercussions, just like those mortgage executives. In that whole mortgage mess, the only people who were held responsible were a few bad mortgage brokers who took advantage of the rules set up by the mortgage companies and added in outright fraud.

So, where does that leave us? For consumers, it is even more important to deal with responsible folks who have been in the business long enough to recognize the faults within the given industry. When I was in the mortgage industry, I refused to write pick-a-pay mortgages because I knew people got fixated on that teaser rate and refused to understand the total cost of the mortgage, which was higher than the conventional mortgages. I know I lost a lot of business because of it. There was nothing I could say to someone desperate to buy a house, a house way too expensive for them, that is looking at the teaser rate and thinking they will be OK with the monthly amount. They were already into a system where the real estate agent had pushed them into a mania because of rising RE prices, got them to fall in love with a house they couldn’t afford and now the mortgage broker was going to complete the financial death with a bad mortgage that would push them into foreclosure and probably bankruptcy.

Fortunately, the bad EIUL structure isn’t going to push anyone into foreclosure. But, it will give the insurance industry another black eye and give the mutual fund/Wall street industry more ammunition against good products. (another industry full of sharks with no regard for consumers)

There is never a good time for the uninformed or the naive in the financial world. What everyone must do is find an ethical guide to get between them and these large institutions we all must deal with. That in itself is problematic as the consumer has a tough time seeing the difference between a corporate shrill and someone that truly will align your needs with the guide against the large institutional forces. It’s the conundrum of our age. Institutional propaganda plus an army of sales folks aligned in saying the same thing with no place for dissent is what we all deal with. Combine this with government interest in pushing Wall Street plans and you have a mean stew for people to deal with.

Trust is in short supply in our society now as it should be. And that might be the biggest victim in all of this. How can a society function with this loss of trust with each other, our government, our large institutions?

Sorry about this negative post, but it needs to be said. Any thoughts you have are appreciated.

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.

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???????

Designer of the 401K now regrets it!!! January 5, 2017

Posted by shaferfinancial in Finance, Mutual Funds for Retirement, Retirement Income.
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Folks who read my blog know how much I dislike the 401K as a retirement vehicle. I have often pointed out that the original design of the 401K assumed it was a supplemental strategy to go along with pensions and other investing for top level corporate executives. It was never intended for use as a single retirement vehicle for average salaried workers.

Now in an article in the Wall Street Journal written by Timothy Martin, one of the original designers basically comes out and says what I have been saying all along.

From the Wall Street Journal Piece:

“His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life. Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start. What Mr. Whitehouse and other proponents didn’t anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979. “We weren’t social visionaries,” Mr. Whitehouse says. Many early backers of the 401(k) now say they have regrets about how their creation turned out….

“The great lie is that the 401(k) was capable of replacing the old system of pensions,” says former American Society of Pension Actuaries head Gerald Facciani, who helped turn back a 1986 Reagan administration push to kill the 401(k). “It was oversold.” ”

So in short, corporations took advantage of the 401K to reduce pension obligations and the need to put aside $$$ to cover those obligations in both good and bad markets. They found this pension cash flow need hard to manage in varying markets. But, individuals are expected to be able to handle this cash flow issue?

I have said it before many times, but sequence of return risk is the greatest challenge to individual retirement savers. And the vast majority of workers have no idea what sequence of return risk is, let alone how it can devastate their retirement savings.

Now that the Wall Street Journal is even on board, isn’t it time you gave me a call?

Bawld Guy Retirement Income Seminars July 3, 2015

Posted by shaferfinancial in Mutual Funds for Retirement, Retirement Income.
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Retirement Income Seminars. Jeff Brown has organized monthly seminars around the country that are focused on strategies for maximizing retirement income. As you know I have for a long time used real data to develop efficient retirement income strategies that work. For years Jeff and I have put together purposeful financial planning based on a multiple prong strategy of real estate investing and EIULs. The data on successful retirement strategies is succinct in documenting what works and what doesn’t work. The seminars present experts on all aspects of successful retirement income strategies including myself. Please look over the list below and visit the link the month of the seminar you can make. The small cost of attending could be the most important decision you make in creating a fruitful financial future.

Bawld Guy Live

2015

Detroit, MI July 10-12
Dallas, TX August 7-9
Las Vegas, NV September 25-27
Newport Beach, CA October 23-25