1. Investing for retirement
The Anti Free Lunch
Bob Black Life401.com
Three parts
Bad and Ugly
Tools
Portfolio

2. Sad but true

3. The Bad and The Ugly Broker Conflict Inflation Free lunch Manipulation
Annuities
Churning
Pushing under writings
Pump and dump
Not fiduciaries
Inflation
Free lunch
Manipulation
Black Pools
Ponzi

5. Mutual fund Analysis by Forbes
Non-Taxable Account Taxable Account
Expense Ratio % Expense Ratio %
Transaction Costs 1.44% Transaction Costs 1.44%
Cash Drag % Cash Drag %
Tax Cost %
Total Costs % Total Costs 4.17%

6. Wall Street Expert Results

7. 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 )

8. Reversion to the mean
Horace Secrist 1933
Harold Hotelling

9. Real interest rates

10. Interest and inflation (1970 to 1980 105.8%)

11. Inflation in Weimar Republic

12. 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
Closed end funds

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

14. REITs It represents ownership of property Depreciation Tax advantage
Use all of the stock tools to pick
Look at their properties

15. Royalty Trusts 99% Oil and Gas SDT,CRT,SBR,SJT,CHKR,PER,ROYT
Not actively managed
Earnings distributed
Depletion tax advantage
Will run out
Think of it as an energy cost insurance policy

16. 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

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

18. Why buy stocks?

20. Indirect ways to own stocks
Mutual funds
Good Managed
Bad Lower outcomes, tax
Closed end funds (Also works for bonds)
Buy at a discount
Not driven by their owners
Tax Efficient
High fees
Bad Sell at a discount

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

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

23. Suggested portfolio. 65%. Broad US stock market:
Suggested portfolio   65% Broad US stock market: 42% S&P 500 Guggenheim Equal Weight S&P 500 RSP 12% Mid Cap Guggenheim Mid cap 400 Pure Value RFV 11% Small Cap Guggenheim Small cap 600 Pure Value RZV 8% REIT 8% ETF Vanguard REIT index VNQ   3% Royalty Trusts 1% Cross Timbers Royalty Trust CRT 1% Sabine Royalty Trust SBR 1% San Juan Basin Royalty Trust SJT   10% International 5 i shares MSCI Frontier FM 5 i shared Core MSCI EAFE IEFA   12% Fixed income: 12% Fidelity Total Bond Fund FTBFX   12% Alternate to fixed income 12% Vanguard Utilities ETF VPU   12% Second alternative to fixed Vanguard Interm-Term Tx-Ex Inv VWITX 2% Partners Nuveen Energy MLP JMF

24. Notes: There is risk in all investments
Notes: There is risk in all investments. This portfolio is designed to be diverse, require minimal adjustment over the years and have minimal fees. It is designed for class members who understand the various products. It should be rebalanced yearly to be within 10% of the target distribution.   Broad US Equity Portfolio: This is to keep up with inflation and allow growth with the economy. It is where we spend our money. It also had components that depend on other countries. Many of the US companies have facilities overseas and sell gods and services overseas. The historic return is about inflation plus 6.7% The risk is about 30%   REIT These provide a good dividend with low taxes. These are mostly dependent on the US economy. The historic return is about inflation plus 4% growth + 4% in dividends The risk is about 35% Royalty Trusts: These hedge the cost of energy. This includes gasoline and electricity. The historic return is about inflation plus 10% The risk is about 90% Others to consider are: SDT, CHKR, PER, ROYT International: The US is becoming a smaller part of the global economy. The international businesses have more room to grow. It has little China direct because most of the others are linked to China directly or indirectly. The historic return is about inflation plus 6% The risk is about 30% because of diversity Fixed income: The large asset management companies run these. The cost to acquire is low and the returns should handle most inflation situations. There is however a good chance selling them will counteract the savings in buying them. The historic return is about inflation plus 3.5%. The risk is about 50% Periods where fixed income is paying less than inflation plus 3% consider using utilities as a substitute.   Limited Partners: Limited Partnerships distribute the taxes on their profits and distribute their cash flow to their unit holders. They make income taxes harder to fill out but tend to allow unit holders to pay lower taxes. The tax saving must be accounted for if the partnership is sold but if inherited the taxes not paid and never need to be paid. The historic returns are about inflation plus 8%. The risk based on history is about 25%.   Gold: and Silver: This is a cushion to the big swings. It allows a more peaceful sleep. It includes both Gold and Silver in approximately the ratio of their historical prices. The historic return is about inflation plus 0.6% The risk is about 50% Holding costs erase all gains Cash: The present return with respect to inflation is about –1.4%: The risk based on the same analysis is about 50%

25. Simple buy and forget Portfolio

27. 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