Investing for retirement The Anti Free Lunch Bob BlackLife401.com Three parts 1.Bad and Ugly 2.Tools 3.Portfolio

Sad but true

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 AccountTaxable Account Expense Ratio.90% Transaction Costs 1.44% 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 2.3 % – 5.75% Style (The herd) Stock picking letters ( Like a tout at the track )

Reversion to the mean Horace Secrist 1933 Harold Hotelling

Real interest rates

Interest and inflation (1970 to %)

Inflation in Weimar Republic

Fixed Income Securities Banks - Checking, CDs, Safety Box TIPS – Insurance not a good investment Everbank Foreign Currency CD everbank.com Foreign Bonds Bond Funds Tax Free Municipal Bonds or Funds

Bond Fundamentals Maturity date Yield to maturity Discount / Premium Callable Taxable Revenue source

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

Gold Does not keep up with inflation Costs to own Not productive Is insurance against rapid inflation

Why buy stocks?

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 BadSell at a discount

Indirect ways to own stocks 2 ETFs Good Tax Efficient Low cost Do as well as the market Bad Not managed Smart Beta ETFs GoodTax Efficient Low cost May do better than the market BadAdded risk of the model

AAII Recommended ETF Portfolio As of June 30, 2014 Weight YTD2013 Expense Guggenheim S&P equal weight 500 RSP 40% Guggenheim MidCap 400 Pure value RFV 20% Guggenheim SmallCap 600 Pure Value RZV 20% iShares MSCI Frontier 100 FM 10% Vanguard REIT index VNQ 10% Performance 100% For Comparison S&P 500 SPY 100%

Diverse portfolio 53% Broad US stock market: 8REITs 3% Royalty Trusts 20%International 12% Fixed income 3% limited Partnerships 1% Gold and Silver

Retirement Assent Allocation No debt: House, car etc. Emergency Fund – Three months 20-40% Fixed when rates are market rates 50-70% Equities 5-15% 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