Distrust; It’s the way of the world now. January 24, 2017Posted by shaferfinancial in Uncategorized.
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My previous post on designers of the 401K that now regret them is a primer into what is going through the minds of many people today. The recent election surprised many [myself included], but it is really a continuation of what I have noted is the unconscious emotions being manifested by Americans.
The overriding emotion now is distrust of the ideas that are championed by people in power. These feelings have been a long time coming, mostly hidden from sight, but increasingly breaking to the surface in dramatic fashion. Why are we seeing this now?
Since WWII we have seen a mostly stable society where the elites espoused mostly believable versions of our society. Sure, you had an outbreak in the 1960s of doubt coming from society due to Vietnam and Civil Rights, but our politicians still held together society with their views and policies [whether from the right or the left]. Any discontent was funneled into the left/right argument with each side appearing to have the answers to its adherents.
But something funny started happening about a decade or so ago. More and more people began to doubt what the elites were telling them. The accepted ideas of society started to be not only questioned, but to be completely rejected. Our ideas of work, for example, were being rejected with more and more people searching for alternative types of arrangements. Families were being reconstituted. Borders were being ignored. Scientist questioned by laymen.
Funny, talking to other parents on my son’s soccer parents I literally couldn’t figure out who were the biological parents, who was with who, what work the parents did, and even whose house the soccer player was sleeping at. Something that would have been unheard of a generation ago when you knew exactly who the parents were, where they lived, what they did for a living, etc. All the old markers of society now seem to be lost.
All that is obvious and many people have noted it. But what is just coming into view is that by untethering us from the old markers, we are free to question everything. And with that questioning comes the understanding that we are being lied to on a regular basis by the folks in charge. When someone in charge says things are getting better for the country and things are getting worse for you, what do you think happens? When someone pledges “for better or worse” and then that isn’t true what do you think happens? When you are told that if you do your job well, give the company your all, you will be rewarded and it doesn’t happen, what then do you trust? When the school system tells you they will educate your child, help your child succeed in our world, and it doesn’t happen, what then?
Teachers complain that parents don’t discipline their kids. Physicians complain that people don’t behave as they should to have good health. Financial advisors complain because people don’t save like they should or sell their mutual funds when they need the money. These folks don’t trust their customers and their customers don’t really trust their advise because they see adverse results all the time.
The price of oil goes up because oil is now dear, then it goes down because there is plenty of it. How we are suppose to eat for good health changes all the time. Educatiopn fads change the curriculum, but the kids don’t respond any differently. Homework is piled on, yet the kids test scores are going down [and what are they doing all day in school?]. All people are supposed to be treated equally, but we don’t.
I could go on and on, but the end result is we now live in a mistrustful society. Spend a few minutes on the internet and you realize this. Nobody trusts anymore; not the politicians, the elites, the school systems, the financial industry, each other. Look at gun sales for an example.
Its hard for me to point this out. But the truth is needed to go forward.
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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.
On Being a Contrarian September 4, 2016Posted by shaferfinancial in Uncategorized.
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Not a day goes by when I don’t speak to a very intelligent person who simply accepts the common wisdom about life. Mostly, this doesn’t cause problems for folks. Unfortunately, there are some area’s of life where just going along with the herd will lead to unfortunate circumstances.
My wife and I aren’t like that. We are contrarians. My wife after watching a ton of TV shows about tiny house living convinced me that we were wasting time and money living in a 2000 square foot abode with just 3 people. So, when we wanted to move she convinced me to move into a smaller place; 750 sq. feet. Frankly, I had my doubts, but guess what? It is working well. Before we had large chunks of our home that we never used other than to throw junk into and collect spider webs. No longer. Cleaning…..is swift and easy and because we use most of our space we keep it more tidy than before. Now when our son disappears into his room [ok his room isn’t tidy] he is simply a few steps away to call for meals. We got rid of lots of stuff we hadn’t used in years. We really do feel lighter. Hard to explain but it works. Who knew spending less money on living expenses, getting rid of excess things, and being physically closer to your family would make you feel so much better?
I do retirement income seminars with some folks. We give information on several alternative strategies for retirement income including EIULs. We took a year hiatus, but we have scheduled another one:
October 28-29 2016 San Diego California
If you have any doubts about what you are doing with your finances, you owe it to yourself to come and listen to our group of experts. For a small amount of dollars you can at the very least understand alternative strategies and possibly put your financial future on stable ground. Doesn’t matter where you live, get on a plane and come out to San Diego to meet us. You can find the link on my retirement income page.
When I talk to folks who followed our advice, they all say they feel much better; happier, less stressed. Becoming a contrarian has its benefits……..
Latest Dalbar Data June 15, 2016Posted by shaferfinancial in Uncategorized.
The latest Dalbar data is out, detailing the continue failure of the 401K/Mutual fund strategy for retirement saving. This has been an ongoing series of datum, for over 30 years, that records what actual investors’ rate of return is over varying time periods [1,3,5,10,20 and 30 years]. The data has been recognized as similar to internal data produced by the largest mutual fund companies.
It is a really simple story. Although this data is created for producers, and is slanted for them to not take responsibility for the results of their advice, this year there is a discussion on the “psychology” of investing, better known as behavioral finance. There is still a misunderstanding on what the behavioral finance scientist tell the industry.
They still call folks who react to market moves, up and down, irrational. That is folks who sell when fear has pushed the market down or buy when the market is buoyed by exuberance are described as irrational. The misunderstanding is in two points:
- Our brains are hardwired to react to fear in a “flee or fight” mode. That is exactly what is rational to do when faced with a saber tooth tiger. So what the mutual fund industry really wants you to do is irrational and goes against how our brains are hardwired. This, of course, explains why people in general don’t follow the advice of these buy and hold mutual fund sales people.
- There is no evidence that the advisors themselves are able to overcome the way their brains are hardwired and not make the same mistakes in their own lives. The industry does try to “encourage” advisors to convince people to buy and hold by tying their compensation into how much total money they are managing, but this has not proved to be capable of stopping people from their fear response.
So having pointed all this out [for the umpteen time in this blog] here are the results:
For the last 30 years the S&P 500 benchmark index has returned 10.35% while the individual investor in equity funds over those 30 years gained, on average, 3.66%. Investors stayed in their equity funds for an average of 4.1 years before selling out.
The numbers are a little better when you lower the time span down to 20 years with S&P 500 benchmark averaging 8.19% and the individual investor averaging 4.67%. This better performance is easily understood because the most damage is done during years the index goes down significantly which hasn’t happened since 2008, a full 1/3rd of the 20 year time period.
For those investing in asset allocation funds and fixed income funds the returns are even worse at 1.65% and 0.59% 30 year returns respectively.
So what does this all mean? Again, this means that the strategy of investing in mutual funds within or outside of a 401K wrapper is a strategy that is unlikely to create enough wealth to fund one’s retirement years, unless you are the lucky few that either has a large enough income to push large amounts into the mutual funds and/or you have “Buffett like” ability to ignore market movements. And, of course, this also means that your interest in creating a well funded retirement goes against Wall Street’s interest in having you invest in stocks [mutual funds or individual stocks]. The individual is left to deal with either a failing Wall Street pushed strategy or figure out a different strategy in the face of massive amount of propaganda for the mutual fund industry.
The sad thing about this state of affairs is that the people who most need to find an alternate retirement strategy [the middle class], are so fully propagandized by the mutual fund industry that they almost never can see alternative strategies without reacting to the negative propaganda put out on EIULs and Investment Real Estate. My clients tend to be up the ladder from the middle class is both income and education and especially adept at mathematical concepts.
My most common question? Why don’t you hear about EIULs or Why isn’t this more commonly done? The second most common comment? There is a lot of negative comments on the internet about EIULs. The next comment is usually, “this makes so much more sense.”
So to all those folks out there who haven’t been able to pull the chain on an EIUL yet, I say, put 3.66% into all those retirement calculators and see what the potential value is at retirement age and multiply that number by 4% [even that number is found to be to aggressive], the suggested amount you can take out yearly to make your retirement last until death. Now that you have gotten off the floor, you might want to give me a call!
EIUL Update February 23, 2016Posted by shaferfinancial in Uncategorized.
Over the last year most of my clients achieved positive results. This in light of a stock market that has gone nowhere with the S&P 500 actually slightly negative. Even more important is that with stock market watchers on edge, expecting negative results, those clients and myself who have EIULs know that whatever the market does our losses are capped at 0. For those who have retirement looking at them in the mirror this has to be a very comfortable position. For those who have decades to retirement, the good night sleep or the ability to completely ignore the noise has to be worth it.
In general, EIULs have continued to become an important alternative for thinking folks who want some protection from market forces. It again was the fastest growing financial product. During the last year, Wall Street and Whole Life forces ganged up to get the SEC to change the illustrations required. This change produces illustrations that are grossly more conservative than before. Note, the SEC didn’t force mutual fund sellers or whole life sellers to become more conservative in their marketing materials. Despite this more conservative illustration regulation, EIULS continued their popularity gain. Note that with the long term lower interest rate environment, the worse possible for life insurers, EIULs continue to preform as they were designed to do. And, the insurers that sell them continue to be financial stable. We are now starting the 3rd decade since the first EIULs were introduced, and everything the critics said would happen, hasn’t. Something that can’t be said about Mutual Funds, Variable Universal Life, Whole Life, etc. Given what has happened over the last 20 years to the economy, the fact that the stock indexes are barely above where they were 20 years ago, given that the historic returns in EIULs have dramatically outstripped mutual funds, this product has fully proved itself.
I get asked all the time why this product isn’t more well known? The answer is very simply that Wall Street + the government has created a propaganda system that is all encompassing when it comes to retirement planning. But rest assured that Wall Street and the Whole Life insurers are very cognizant of the power of EIULs for retirement income. Hence, the new illustration rules.
Buffett’s Investment Philosophy Simplified September 30, 2014Posted by shaferfinancial in Finance, Uncategorized.
Tags: Buffett's Philosophy, How Buffett Invests, Why Buffett doesn't panic?
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When the market is going up, every one is a genius. But, to really understand how great investors do it, you need to look at their long term strategies.
Warren Buffett’s Strategy is simple to understand and very difficult to do:
1. Identify well managed companies;
2. Analyze their medium term outlook by understanding if they have a “moat,” meaning an enduring advantage over others in their same business;
3. Look at their books to make sure they have a business model that makes sense for the business they are in;
4. Calculate a fair price for that business;
5. When the price is at or below that fair price buy; and
6. Hold until the moat is gone, management disappoints, or some fundamental change in the economic environment causes you to reevaluate the business.
Easy as pie!
Here is the kicker, the vast majority of people will react to price movements, especially extreme price movement. If the companies stock starts to tank they will panic and sell. Buffett has the psychological makeup to stick to his analysis ignoring the market emotion. Since he has done his own due diligence he has the confidence to ignore the chatter out there. He also knows that most of the analyst that work for the major brokerage firms are relatively young and inexperienced. There is also the reality that in some incidences the brokerages own accounts tend to work opposite what their own analyst are saying, so they are buying up cheap stock as their own analyst are saying sell and they are selling when their own analyst are saying buy [with an appropriate short time lapse to not be too obvious about it].
Due to technical reasons the market is even more volatile than it was back in the day which puts even more pressure on folks who think they are missing the real reason a stock is going down that the insider’s know.
Bottom line, for me, is that I have found having stocks that pay a good to great dividend gives me the ability to ignore the market chatter [along with re-reading Buffett!]. That dividend carries me through a stock drop or a general bear market. Understanding how one of the greatest investor in history thinks about investing is a gift that continues to give.
Energy, Oil and other musings July 11, 2014Posted by shaferfinancial in Uncategorized.
Tags: demand for oil, energy, oil, oil drilling, tight oil, UW oil drilling
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I have made big investments in energy stocks. Just thought I would put my thoughts down, based on the research I have done over the last year.
1. Demand for oil continues to go up. This is a fact.
2. Existing wells are producing less oil. This is going on whether it is old-school land based [Middle East] wells, underwater wells, or tight oil [so called shale oil]. The depletion rate has been increasing for quite a few years, yet gets little analysis. This is a fact.
3. The tight oil drilling that is going on in North America is great for the US. But it has no chance of making us independent of imported oil. Great for jobs in Texas and the Dakota’s, but it clearly faces some issues, not the least the rapid depletion rates. Technology has made it all possible, but this technology took 3 to 4 decades to come on board. Can we really expect new technology to make drilling more efficient and profitable to come on in the next few years?
4. Most of the shale oil drillers are not profitable. They have burned up much Wall Street capital. But at least 2 of the CEOs of the major integrated oil and gas companies have withdrawn their companies from shale oil plays because it does not provide the IRRs they felt their companies required.
5. The major oil and gas companies are reeling from decreasing profit margins from their now highly depleted resources. The cost of getting a barrel of oil is increasing.
So, in short what we have is increasing demand, decreasing ability to meet that demand, and a tight oil market that apparently is not very profitable.
In 2013 the majors took a break from their massive investing in new resources to get their balance sheet more to their liking. However, eventually, and by eventually I mean by next year, they will need to produce more oil to feed their system of production and distribution. So how do they do that?
Tight oil helps, but it is never going to cover the depleting existing wells, let alone the increased demand. So where will this new oil come from? The vast majority of the known reserves exist under the water around the globe. The Arctic, the North Sea, GOM, off of South America [Brazil, Argentina, etc.] Africa, off of Nova Scotia and even the eastern Mediterranean all have proven deposits of oil.
Even if Russia and other countries start to drill for tight oil on land, there still is much unmet demand. The existing land wells are not going to miraculously start to produce more oil. That leaves drilling under the water as the only viable place to get the oil. There pretty much has to be a significant UW drilling program invested in by the major oil producers.
Wall Street interests would have you believe that the tight oil phenomenon will solve our oil demand problem. It won’t. They would have you believe that all this oil being taken out of shale deposits is going to make you rich if you invest in all these drillers. I doubt that. The big money has already been made. And if I have an accurate picture of how Wall Street and its interests work, then currently there is a movement going on to pull Wall Street investments out [with a great profit] and get retail investors in. Time will tell on this one.
Above is what led me to the underwater drillers like Seadrill [SDRL].
There is much misinformation about energy, investing in energy, our country’s position in energy, etc. Much of it can be characterized by political or Wall Street propaganda. But it doesn’t take long to dig through that and find out what is really going on. So use Google and take a look for yourself.
Here is an interesting article: http://oilprice.com/Energy/Energy-General/Orwellian-Newspeak-And-The-Oil-Industrys-Fake-Abundance-Story.html
Emotional Damage April 28, 2014Posted by shaferfinancial in Finance, Uncategorized.
Tags: emotions and the market, Prepare for the coming bear market, What will you do when the market goes down?
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We spent last week down in Boston as we usually do. As most regular readers know, last year we were at the Marathon to watch a family member run. It was a very scary situation for our then 11 year old son. This year he made it clear he would not be going into Boston to watch the marathon. Pretty much the entire family felt the same way.
He will get over his fear soon. But, for now we deal with his emotional damage by spending time in Boston doing other things. After 2008-2009 many people lost their confidence in the stock market. They should have, not because of any unusual occurrence, but because it was a normal stock market occurrence. They should have developed a healthy respect for the harsh realities of how some stock market movements happen, suddenly and sharply. Just as my son should develop a healthy respect for the fact that there are bad people out there that will try to hurt people they don’t know. The result should be to create defensive positions that lower ones emotional valence about their environments.
EIULs do that for folks savings. By creating a system that doesn’t lose massive value quickly, and allows for some liquidity for getting to the savings, people’s emotions are kept in control. This allows people to go about their daily lives with a lower amount of stress and put a comfortable spin on saving for retirement. The results are predictable. People who have less stress, react more rationally. People who are not punished by penalties when they access their savings in an emergency situation are more likely to recover confidence and continue to add to their retirement savings once the emergency situation is over.
Don’t be one of those people that pushes bad thoughts out of their minds, just to have those same thoughts come back as soon as a bad event happens. Create an environment where the bad event is prepared for and dealt with rationally.
EIUL Update April 11, 2014Posted by shaferfinancial in Finance, Uncategorized.
Tags: EIUL, EIUL Returns, Minnesota Life EIUL
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I start out this update with some facts:
From 1990-2009, the average mutual fund outperformed the average mutual fund investor by more than 300%, annually. Since ERISA was passed in the 1974, enabling 401k accounts, the market has returned an average of 11% per year. However, the average investor has gained only 3% per year. [Found on the Big Picture by Barry Ritholtz while trying to convince you to let him manage your money]
With those facts as background, most of my clients are receiving the maximum interest credits [cap rate] on their EIULs this year as they hit their anniversary date. These gains are now locked in and can’t be taken away by a downward swing in the market.
Minnesota Life still is my go-to company for EIULs. They instituted a post 10 year bonus last year, putting it back on top of my list. The product itself has been the best performer of the EIULs over the 10+ years it has been in existence.
Here are the actual interest credits you would have received if you had purchased this when it came out. [assuming a Jan. 1 anniversary date] using the actual cap rates at the time.
CAGR of 8.48%. Not to shabby for some fairly tough years that caused folks to panic that were invested in mutual funds and underperform by 2/3rds.
The actual index returned a CAGR of 5.1% during the same time period.
Real Returns, not theory on how this product might work.
And now folks will start getting their post 10 year bonus to boost returns even more.
If you have been waiting to get involved with this product, now is the time before the inevitable market down draft gives away your money.
Annuities and You March 21, 2014Posted by shaferfinancial in Finance, Uncategorized.
Tags: Annuities, Equity Indexed Universal Life, Fixed Index Annuities, Market risk, retirement income, Sequence of Return Risk, Sleeping Well
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No where in the financial services field are there more folks arguing about where to put your money than in the annuity/mutual fund market. Well known stock salesmen [Like Ken Fisher] put out all sorts of scary information about annuities in hopes that you will give him your money to invest. So I thought I would put out my thoughts.
Annuities have their place in peoples portfolio when there is not enough funds to withstand market downturns or when there are so much funds that a save return is all that is necessary to fund a comfortable retirement. In short, it is my belief that market risk [including sequence of return risk] is the most dangerous risk out there for folks and should be addressed in a rational way. Greed is a constant of human experience and Wall Street has been using that against us for a long time. Their claims, whether mutual fund returns or stock returns, are attractive to us. But what they don’t tell us is what really matters. That is, even under the best circumstances, the stock market is a very risky place to put money that you will need at a certain time. The closer we are to that time, the more risk there is. Of course, for most people their 40s and 50s is when they have the most disposable income to capture for retirement. These two facts collide to make a dangerous stew that has proven to be a poor recipe for retirement income.
Annuities have been recently redesigned to fit into this paradox. As you approach retirement, how do you shed market risk, still get decent returns, avoid sequence of return risk, and deliver lifetime income? There are two possibilities, life insurance contracts like EIULs and annuities. Of the two, only annuities are able to guarantee that lifetime income.
Are there costs to this? Of course. The costs are you leaving on the table some potential market gains in exchange for that market risk reduction. But, here is the fundamental truth, the vast majority of people are not mentally structured to deal with stock market risk and its huge downsides. Most people, at the very least, lose sleep when the market goes down 20% or 25% or even 45%. When we look at the data of individual investor behavior we see many, perhaps the majority of folks selling low and buying high. So most people aren’t able to take advantage of the possibility of better market returns in mutual funds or stocks.
Let me outline it for the reader:
1. Human behavior causes most people to make major mistakes in investing in the market
2. Sequence of return risk, even if they don’t make mistakes, can and probably will damage retirement income significantly
3. Annuities are designed to give good returns [sometimes guaranteed] and high annual income guaranteed for life.
4. As people age, they should significantly reduce risk on money to be used for retirement income.
5. Annuities and EIULs should be considered as part of the financial planning process because of the strategies employed in them reducing market risk.
6. Using insurance products for retirement income is a more conservative choice than using stock market products like mutual funds.
7. Current 401K levels prove the veracity of #1 through #6.
Yes, I am biased because I sell fixed index annuities and EIULs. But I could easily sell mutual funds and stocks if I wanted. But, I have been clear about the dangers of those financial strategies and refuse to go along with the easy way of simply selling what is popular. Follow the popular trend with mutual funds if you want, but you have been warned.
Contact me, I am always happy to talk to people. It makes my day~