Investing for retirement
The Anti Free Lunch
The Bad and The Ugly
Broker Conflict
Annuities
Churning
Pushing under writings
Pump and dump
Not fiduciaries
Inflation
Free lunch
Manipulation
Black Pools
Ponzi
Mutual fund Analysis by Forbes
Non-Taxable Account
Taxable Account
Expense Ratio .90%
Expense Ratio .90%
Transaction Costs 1.44%
Transaction Costs 1.44%
Cash Drag .83%
Cash Drag .83%–
Tax Cost 1.00%
Total Costs 3.17%
Total Costs 4.17%
The Bad and the Ugly 2
Mutual fund success 30%
How clients drive bad outcomes
How funds come and go
Mutual fund survivorship ( Review of Finance )
20% Lower when dropped funds are included
Mutual fund broker commission
4.5 % – 5.75%
Stock picking letters ( Like a tout at the track )
Advisor and Broker Knowledge
Advisors
Asset Allocation
Style – Sector rotation
Brokers www.finra.org/Brokercheck
The company line
What makes money for them
Why are they dealing with you?
Who are the Lions?
Treasury
Federal Reserve
Pension Funds
Mutual Funds
Insurance Companies
Hedge Funds
Brokers
Banks
Being a Mouse with Lions
Real interest rates
Interest and inflation
(1970 to 1980 105.8%)
Inflation in Weimar Republic
Stable Interest chart
Fixed Income Securities
Banks - Checking, CDs, Safety Box
TIPS – Insurance not a good investment
Everbank Foreign Currency CD everbank.com
Foreign Bonds
Corporate Bonds in IRA
(zionsdirect.com)
Tax Free Municipal Bonds or Funds
Bond Fundamentals
Maturity date
Yield to maturity
Discount / Premium
Callable
Taxable
Revenue source
http://screener.finance.yahoo.com/bonds.html
Alternate fixed Income
•
•
•
•
•
•
Closed End Funds cefa.com
Royalty Trusts
Utility stocks
REITs
MLPs
Diversify and Ladder
REITs
It represents ownership of property
Depreciation Tax advantage
Use all of the stock tools to pick
Look at their properties
Royalty Trusts
99% Oil and Gas SDT,CRT,SBR,SJT,BPT,CHKR,PER,ROYT
Not actively managed
Earnings distributed
Depletion tax advantage
Will run out
Think of it as an energy cost insurance
policy
LPs
Nearly all oil related
Use deprecation to show little income
Pay a good dividend
Basis is reduced by: dividend-income
Usually mid stream pipeline
Tax deferred
Must be inherited to avoid big tax hit
Why buy stocks?
Company Fundamentals - Stocks
Income year and quarter – Sustainable?
GS&A
Growth
Balance Sheet
Inventory - Square root rule
Debt
Sneaky debt items
Quick ratio
Company Fundamentals – Stocks 2
Other Yahoo items
In depth at www.sec.gov
Litigation
Pension liability
Auditor Qualification of opinion
Derivatives
Capital leases
Related party transactions
Company Technical Analysis
Moving average
Look at 50 day and 200 day
Breakout of 50 above 200 is a buy signal
MACD and RSI
Positive are buy signals
Volume
Stock Technical Analysis web site
www.stockta.com
Buying stocks
Check the market for direction
Find candidates
Things you like
Graham Variations
Candidates from ETFs
Low P/S, P/E, P/B
Do Fundamental analysis
Use Technical Analysis for timing
Diversify
Indirect ways to own stocks
Mutual funds
Good
Managed
Bad
Lower outcomes, tax
Closed end funds (Also works for bonds)
Good
Managed
Buy at a discount
Not driven by their owners
Tax Efficient
Bad
Sell at a discount
Indirect ways to own stocks 2
ETFs
Good
Bad
Tax Efficient
Low cost
Do as well as the market
Not managed
Smart Beta ETFs
Good
Bad
Tax Efficient
Low cost
May do better than the market
Added risk of the model
AAII Recommended ETF Portfolio
As of June 30, 2014
Weight
YTD
2013
Expense
Guggenheim S&P equal weight 500 RSP
40%
8.4
35.6
.40
Guggenheim MidCap 400 Pure value RFV
20%
6.5
38.3
.35
Guggenheim SmallCap 600 Pure Value RZV 20%
2.9
45.1
.35
iShares MSCI Frontier 100 FM
10%
9.9
25.6
.79
Vanguard REIT index VNQ
10%
17.7
2.4
.10
Performance
100%
7.7
33.7
For Comparison S&P 500 SPY
100%
7.1
32.2
.09
Options
Put is an option to sell
Use Puts as a way of buying
Never sell a put if you do not want to own the
stock
Buy puts on sinking ships
Call is an option to buy
Sell covered call for income
Buy a call in place of stock for short term gains
Use both for Pending major disruption
Opportunistic
FOREX www.forex.com
Fastest way to make and loose money
Trillions change hands every day
Can be irrational both good and bad
Use Vegas money not Investment
money
Gold
• Does not keep up with inflation
• Costs to own
• Not productive
• Is insurance against rapid inflation
Assent Allocation
No debt: House, car etc.
Emergency Fund – Three months
20-40% Fixed when rates are market rates
50-70% Equities
5-10% Specialties
REITs, Closed end Funds, Royalty Trusts
0-2% Gambles
Do not have blinders
Risk
Civilization Collapses -Guns, ammunition and
food
Inflation – Commodities, foreign stocks and
bonds, manufacture of things that will
appreciate and short term securities
Deflation - Longer term bonds, money and not
Commodities
Expropriation – Investments outside of the US
Formerly only a risk in third world countries
Rules
Understand it or don’t do it
Know the source of the money
Be bold when others are fearful and be
fearful when others are bold
Never give a Broker control
Use only FINRA Brokers and SEC
Advisors
Do not buy Annuities