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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. ūüôā
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.


Are people waking up to the issues of mutual funds as retirement vehicles? October 17, 2016

Posted by shaferfinancial in Finance, mutual funds, Retirement Income, Uncategorized.
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An interesting trend is occurring with the people who are contacting me about EIULs. I am getting a lot of calls from folks in their early to mid thirties who start the conversation off with something like this: My 401K is going nowhere, I know there must be a better way to save for retirement. Now I find this very interesting because most of these folks weren’t in the market in 2008, the last time we saw a significant negative year.

I had this conversation recently with a 35 year old.

DS: What are you trying to accomplish?
Client: Well, my 401K is going nowhere, so I am looking for something that will do better and work for me.
DS: When did you start your 401K?
Client: Well, I don’t really remember, but it was somewhere around 2008 or 2009. Before that, I really didn’t have a great job and I wasn’t married so I was spending everything I made.
DS: Do you own a home?
Client: Yes, after getting married, my wife and I were able to buy a home with assistance from our families.
DS: How much are you able to save now?
Client: Well, between my wife and myself we are saving around $1200 month including what we put into our 401Ks. Before our 1st child was born, it was a little more.
DS: Do you remember the stock market dropping significantly?
Client: Well, I do remember it, but it did’t really affect me, so my memory of it is vague. Around 2007 or so right? But we do remember the housing prices dropping, because we were able to pick up a nice house for a decent price in 2010.
DS: Yes, 2008 was the last time we saw a big drop in the stock market.

What is surprising to me, is that this 35 year old recognizes the issues with mutual funds even though he hasn’t had a truly big negative year. People tend to forget the fear of big drops in ones finances, but the scars remain long after the memory fades. But, this person was able to recognize the issue without the scars or the memory. And he isn’t alone. I have been getting increasing amounts of calls from folks in this same situation and similar age group.

That is progress.

What I would like to ask the mutual fund shrill’s? April 26, 2016

Posted by shaferfinancial in Finance, mutual funds.
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Sometimes I imagine the ability to actually press the facts on the mutual fund industry.
Alas, this isn’t likely to ever happen. But what if it did? Here a made up scene of a mutual fund executive getting grilled on the witness stand by an attorney. Again, this is a product of my imagination!

MF= Mutual Fund Executive
TA= Trial Attorney

TA Your company has 10,000 sales people giving advice to people on retirement savings, right?
MF We don’t call them salespeople, they are Registered Investment Advisors or Certified Financial Advisors, but yes that is about the number.

TA The majority of the time they suggest clients invest in mutual funds, correct?
MF Not sure about that
TA How many of your mid income clients are suggested to be in stocks or bonds and not mutual funds?
MF In that group I would agree with you that most are in mutual funds.
TA In fact, your company in involved with over 100 of the fortune 500 employees, correct?
MF Sound about right
TA So you have a fiduciary duty to put 100’s of thousands of employees into the correct retirement savings vehicle.
MF Yes

TA Have you seen the Dalbar reports on individual returns for those investing in mutual funds?
MF I believe we give that out to our representatives
TA Does you company have any internal analysis of individuals’ returns that invest in mutual funds with your company?
MF Yes.
TA What is the average returns that you are finding for individuals?
MF I’m not sure
TA Can you read the report generated by your company that I just handed you [Exhibit 34]?
MF Yes, give me a second
TA Just read the last paragraph out loud to the jury
MF Overall returns average around 3.3% over the last 25 years for individual investors……..

TA Where in your printed advertisements does that number appear?
MF Don’t know, you would have to talk to advertising
TA Does it ever appear in your companies advertisement?
MF Not sure
TA Again, are you aware if that result ever appearing?
MF No, not aware of it.

TA Does being a fiduciary mean you should disclose items like that?
MF No, the SEC has never made a rule like that.
TA So because it is not required by the SEC you don’t feel the need to be honest with your clients?
MF That is not how we think of it. If our clients do what we tell them too, they will get much higher returns than that.
TA But they don’t do they?
MF I’m not sure.
TA Did you not just read your internal research indicating that they don’t?
MF I’m not sure we are talking about the same thing

TA What is the object for these employees in their 401Ks that you are suggesting they fund with mutual funds?
MF To save for retirement
TA Would you say that the objective is to ultimately have a stream of income when your clients no longer work?
MF Yes, that would be correct
TA Would you also say that you want to have them get the largest stream of income they can?
MF Yes
TA Would you say that part of your fiduciary duty is to make sure you suggest financial instruments that would accomplish the largest stream of income they can achieve?
MF I would agree with that

TA Have you heard of sequence of return risk?
MF Yes, but what does that have to do with mutual funds?
TA Explain what your understanding of sequence of return risk is
MF The order of returns. In other words, is the order of returns such that it increases the risk to the overall return given a certain time period.
TA When people save for retirement are they looking for a return in a certain time period?
MF Well, yes I guess, they are going to retire at a point
TA So wouldn’t they have to deal with sequence of return risk?
MF Yes, but we have products that deal with that
TA What are those products?
MF Annuities and certain mutual funds that move the percentages of equities down as one ages.
TA What does that do to the overall return?
MF Well it would decrease it.
TA Your products that your company suggests to deal with market variation reduce the returns below the 3.3% return you previously read?
MF Well….if you put it that way….but anytime you reduce risk you reduce returns
TA What percentage of your clients are in these risk reducing products?
MF It would be a small percentage of folks approaching retirement.
TA So, for most of your clients sequence of return risk is a real concern?
MF We aren’t concerned with it for most of our clients
TA Why?
MF Most of our middle income clients are more concerned with overall returns
TA Do you think if they understood SOR risk they might be concerned with it?
MF We don’t speculate on that, we give the clients what they want
TA But aren’t you a fiduciary?
MF Again, the SEC doesn’t require us to talk about SOR risk

TA As a fiduciary you are not discussing the overall returns experienced by consumers and the ways to decrease SOR risk?
MF We discuss what the most appropriate vehicle is as required, and for most of our middle income clients mutual funds are the most appropriate vehicle. We have worked hard to get the overall expenses down in mutual funds and are very proud of our products that lead the industry in low fees!
TA So you are very proud of the fact that your clients are receiving 3.3% returns over the long run when the market has returned over 8%?
MF Well that is a function of investor behavior that we have no control over. The product itself does great when matched up to our competition.

Is Minnesota Life Eclipse still the best EIUL? January 21, 2014

Posted by shaferfinancial in Finance, mutual funds.
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Each year I look at the full market for Equity Indexed Universal Life Policies to determine which ones I will sell in the coming year. For the last few years the results have been fairly stable, despite many changes to existing policies and several new EIULs entering the market place.

This year is no different. Minnesota Life in my opinion is still #1. The Eclipse has several changes made to it that improved the overall performance.

1. A bonus was added for years 11 and up.
2. Index options where changed. Most notably a blended option was added.
3. Underwriting was improved for those folks who had 1 blemish on their health report.

My thoughts on why the ML Eclipse is still the best EIUL going forward:

1. They added a bonus to not only future policy owners but ALL policy owners so some folks will get there first bonus this year.
2. They still are the most policy holder friendly life insurer out there
3. They continue to have a history of the best performance of all EIULs on the market
4. The new blended index option has the highest 20 year look-back of all options available.
5. They have very fair underwriting
6. The company still is highly rated [93 Comdex]
7. When they make changes it is to make the product better for the policy holders

I sleep well putting folks into the Eclipse, knowing that their premium is safe and compounding at the highest rate possible in an EIUL.

Over the more than 10 years that the Eclipse has been around it has worked exactly how it is advertised to work giving folks more than 8% average returns over that time period. All the detractors of using EIULs for retirement savings now have only some vague fear to sell folks as we now have enough data to know this product works well for tax free retirement income.

Good year of crediting for EIULs January 17, 2014

Posted by shaferfinancial in Finance, mutual funds.
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Just a short update on 2013’s crediting on the Minnesota Life’s EIULs.
If you were in the S&P 500 index you got the full cap of 13% credit.
If you had switched to the blended index as I suggested you would have got the full cap of 16% [this is all dependent upon what month your anniversary is as the index credit has some variance from month to month. These credits assume a December anniversary date]
The variable rate loan charge is 4.5% currently, so if you were taking out a variable loan last year you would have made 11.5% on the money you had loaned out.

Obviously, if you had money in an index mutual fund you would have bigger gains this year, but as I have demonstrated many times before, the lack of losses in the account more than makes up for the occasional underperformance vis a vis the index with downside market risk.

The last year demonstrates the strategy working just as it should.

It was pointed out to me that I haven’t written a full post on using EIULs for retirement income in a long while, so I will write one this month for those new to my blog.

Why does Dave Ramsey tell people untruths? February 18, 2009

Posted by shaferfinancial in Finance, mutual funds, Uncategorized.
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Check out this video from Dave Ramsey from U-tube.

Now I am with Mr. Ramsey at first.¬† He makes some great points about buying expensive cars and financing them over years.¬† You are much better off buying inexpensive cars with cash and leveraging that with savings to buy better cars over time.¬† But where does he get a 12% return from mutual funds?¬† Really, why does he do that?¬† ¬†He knows, or at least he should know that no mutual funds have returned 12% over¬†the long term¬†(20 years or longer).¬† And he knows or should know that actual individual returns from mutual funds over the last 20 years was 4.4% according to the most recent Dalbar Inc. study.¬† So why use a unbelievable 12% return?¬† I suspect he has painted himself into a corner with his investment strategies, which require him to claim almost triple the return actually found.¬† If he uses real numbers his strategies fall apart rapidly and what is left is a near broke family at retirement.¬† Debt free, but nearly broke and dependent upon the government.¬† Pretty hard to sell that as the result of your advice, right!¬† Then he makes another “mistake.”¬† He doesn’t account for inflation.¬† His claim that you could buy a car with your excess in the mutual fund account every 5 years doesn’t account for the price of cars going up with inflation.¬† So that $17,000 car in today’s prices is really a $19,500 care in five years (assuming a very conservative 2.8% inflation rate)¬†and a $22,500 car in 10 years.¬† His strategy would force you to by a cheaper and cheaper car as you go along.¬†

But wait there is more poor thinking.  Yep, regular readers will note that the strategy employed is to invest in a mutual fund that is not in an IRA or 401K, so not tax deferred.  All mutual funds, including index funds, trade.  Therefore they have short term and long term profits (hopefully), and pass the taxes on to the owners.  They also hold dividend paying stocks or interest paying bonds that also cause taxation which of course is passed on to the owners.  So the payment of taxes will lower your overall returns even more.

A quick review; doubles or triples the realistic returns, doesn’t account for inflation, and doesn’t account for taxation.¬† And if your overall return isn’t near that ridiculous 12% figure (and it won’t be), that car you could afford rapidly decreases to junk heap status.

And now you have proof that what many of Ramsey’s critics are saying about him is correct.¬† And you can look at the actual results for people retiring today to see the real world results of his thinking.