STOCKS....In the second hour, Brinker mentioned that the S&P 500 Index has rallied since spring 2009 - from 676 to 2581, with no bear markets.
Honey EC: Yes, the stock market started dropping in October 2007 when Brinker was recommending S&P 1465 as an all-in buying opportunity. As he remained fully invested and the market dropped, he made ever-lower Marketimer buy-signal calls all the way down. The market bottomed at 676 in March 2009.
NASDAQ RECORD CLOSES THIS YEAR.... (Honey comments). The Nasdaq is outpacing the Dow and S&P and has had 61 record closes this year.
Nasdaq books biggest blowout victory against the Dow industrials in 15 years The Nasdaq gave the Dow a historic beating in Friday trading.BRINKER'S MARKETIMER SOLD ALL NASDAQ HOLDINGS IN 2012.... (Honey comments) In November 2012, Brinker sold out all of his Nasdaq holdings, including any leftover QQQ's that some subscribers might have been holding since his 2000 Buy-Bulletin. They did not recoup all of their losses after holding for twelve years.
OOPS, SOLD TOO SOON....When Brinker sold all Nasdaq, it was at 3065. Today five years later, it is at 6701 - more than double! He sold QQQ five years ago at $67.26, today it is $151.04.
BONDS....No mention of bond funds or interest rates today.
NATIONAL DEBT....BB reported that the deficit is now about $662 Billion and the National Debt is climbing close to $20.5 Trillion, but is not being talked about in Washington.
Honey EC: Yep, that's true, just like it was never talked about the prior 8 years when it DOUBLED from all previous presidents. Brinker only occasionally mentioned it during those years but worries about it every week now.
ECONOMY....BB: The 3rd Quarter GDP growth is at 3.1%....."Good news on the economy and you have seen the stock market respond to that good news on the economy."
NEW HOME SALES....BB: New home sales are up for the month of September 18.9% - biggest gain in 25 years.
POLITICS OF TAX-REFORM PROPOSALS.... Brinker spent almost all of the first two hours today speculating on what the tax-reform proposals will be. He was very upset because he believed that congress were going to "blow up" the 401Ks by reducing the amount that be deposited in them.
He quoted one of President Trump's Tweets which said that 401Ks were safe, and then kept saying that he "hoped" the president would keep his promise. Most of the caller's talked about and ask questions about the same subject.
However, before the program ended, the news had been published that congress has no intention of "blowing up" the 401Ks. From Fox News: Americans' 401(k)s will be safe, GOP leaders set record straight
Honey EC: It is my intention to avoid turning this blog into a political discussion forum. I will report the general subjects that Brinker talks about but will avoid covering his speculation.
After the tax-reform bill becomes LAW, if Brinker wants to give educated guesses about the effects on the markets, we will cover that and open it up for discussion.
Personally, it is very disappointing to see Moneytalk turn into political-talk almost non-stop, and especially when Brinker clearly was not informed on what he was talking about.
==> Unfortunately, our friend dRahme was not able to make any audio clips for us today.
FRANKJ'S MONEYTALK-GUEST SUMMARY
Bob’s third hour guest this last Sunday in October was Henry Kaufman. Dr. Kaufman’s latest book is “Tectonic Shifts in Financial Markets: People, Policy and Institutions.”
While an economist working at Salomon Brothers in the 1970’s, he earned the nickname of Dr. Doom for his frequent criticism of government policies. Later, he accurately called the bottom of the market on August 17, 1982. That day there was a rally which was the beginning of the longest bull market in history. (Source: David Warsh, "Bull Run". The New York Times. January 21, 2001.)
Bob led off with a question on the pending appointment of a possible new Fed chair. Would he appoint Janet Yellen? Answer, Yes. She has done a good job, markets have moved ahead, unemployment is down, inflation under control. Regarding two leading replacement candidates, he thinks Jerome Powell is a “steady as you go” type who would further the policies of JY. The other candidate is John Taylor who he said was wedded to his monetary beliefs. He mentioned the “Taylor Rule.” He thinks Taylor would raise interest rates faster than Powell. Read up on the Taylor Rule here, there WILL be a quiz.
The Fed is good at reacting to changes they’ve seen in the past. The economy expands and inflation heats up and the Fed knows what to do: tighten the money supply. When the opposite happens and the economy needs a boost then start the printing presses.
Structural changes have left the Fed scratching its head. Dr. Kaufman listed some of these:
Low unemployment often leads to inflation as labor pushes for higher wages. That element seems missing due in part to the weakening of unions, automation and offshoring of jobs. So while unemployment is at a low level, the Fed is not fighting inflation. Another structural change regards banks and financial institutions and how big a piece of the financial pie they control. In the 1990s the ten largest banks only controlled 10% of the financial “pie.” Today, the ten largest financial institutions (not all of them banks) control 80%.
Likewise, the Federal Deposit Insurance Corporation insured 15,000 outfits but today they only insure 6,000.
These are not the repetitive changes in the economy that the Fed is used to dealing with. These fit into the “you can’t go home again” category he referred to, which is the title to a chapter in his book. Productivity is hard for the Fed to estimate because machines, artificial intelligence, and analytics have clouded the labor input/product output relationship. He thinks we’ll have about 2.75% GDP growth for a while.
On the national debt, ($20 Trillion plus) Dr. Kaufman had these observations: The users of credit (borrowers) in the U.S. are households, business and the government. The availability and use of credit is necessary for the economy to grow. Right now business has borrowed a lot and further borrowing might be difficult without expanding into the junk bond area. Households aren’ t borrowed to the hilt like they were in 2008, but they aren’t far off that mark according to the guest. That leaves government as the only entity that can keep borrowing to grow the economy.
(That is a scary notion with the federal debt where it is).
Don’t we need population growth in order to have GDP growth? That was the question from caller Sharon in Missouri. Dr. Kaufman said traditional population growth won’t be as important. He pointed to Japan as an example of a country that is not replacing its aging population with young people. Robotics is filling the gap.
Bob said, “robots don’t shop,” so where will the consumer spending come from? Good question. I can’t say the guest gave a definitive answer. He did say we need to think about where people’s retirement benefits will come from in 30 to 40 years. I assume he was thinking of Social Security.
Speaking of retirement benefits, what did Dr. Kaufman think of the proposal to severely limit the 401K program? Bob had talked about this extensively during the previous two hours. The guest said it was not a good idea, he favored the incentive it gives people to save.
Regarding another big tax reform issue, Dr. Kaufman said he thought the proposal to do away with the sales and property tax deductions would not make it into the final tax reform legislation.
Dr. Kaufman does not think transparency is good for the Fed. There is no going back even though he thinks they functioned better when they worked behind the scenes. He said when Bill Martin was head of the Fed, his name was not as well-known as Greenspan, Bernanke and Yellen. There will be no going back to those days, though.
Honey here: Thank you very much Frankj! Very interesting guest - and very informative summary!
KKOB770
110 comments:
.
Calm down, Bob....The President knows what he's dealing with in Congress. He will do as he said - the 401Ks will not be "blown up."
rasputin here - I too was saying the same thing to the radio. Calm down.
I like that he keep on stating that the President would have to keep his word or forced to keep his word. Kinda left the listener thinking the Pres may be a shady guy, but this time he would be forced to keep his word. It is a shocker an absolute socker. A disgrace. A crock of bologna, attacking the middle class. I do hear from the press that this President is always blowing things up. NPR reporter claimed he was blowing up NAFTA. Boom. Is this legal to go around blowing things up? Maybe that's why some people say the new guy in town is dangerous? Bang.
I do think Congress has an over supply of swamp dwellers that like the way things worked before the outsider was put in charge. Republicans as well as Democrats have a core that want to thwart President promises. If your an Democrat this would be done overtly. The swamp Republicans need to passively sabotage the action and suggest to press that they are working on limiting the tax deferred accounts.
.
Since most of Brinker's tax reform political views are sheer speculation, I intend to keep the tax reform discussion here strictly to what is provable by facts - such as the quote from President Trump's Twitter Feed.
We are not going to speculate on this site - even though 90% of what Brinker has done for weeks now is speculate. PERHAPS after the proposal is presented on November 1st, we can discuss it.
If dRahme sends audio clips of any of it, I will post them.
.
Note to the people that have sent their opinions about tax reform and/or President Trump:
As I said above, those subjects are off limits for discussion here - perhaps tax reform will be discussed AFTER we actually KNOW what it is - or maybe we will wait until it becomes law.
But I appreciated your comments and if you want me to weigh in on them, you are very welcome to join my Donald Trump Thread at Silicon Investor. (I'm not there this afternoon since this work here keeps me quite busy today, but will be checking back in tomorrow.)
Here is the link: Silicon Investor
.
Fox News just sent a bulletin totally disputing what Bob Brinker has ranted about through the whole program. WHAT A COMPLETE WASTE OF EVERYONE'S TIME:
Americans 401Ks Will be Safe GOP Leaders Set Record Straight
Yes, it appears Brinker was not reading any news articles on Friday last week. I googled and found several news articles published on Friday in which Kevin Brady, who Brinker blamed for proposing these cuts saying that they are actually thinking about increasing 401K contributions. So I guess the lesson for Bob is that if he wants to build his program around a proposal being floated around Washington he should make sure he has the most up to date information before air time.
.
Jim, not only did Brinker spend most of the program putting out misinformation, no doubt many people who do not keep up with the latest real news, will be very upset about what he said and never know that it is not true.
Additionally, many people tend to read more into his words than was there. And he got really hyperbolic about it, so people will blow it all up in there minds.
So actually it was more than a waste of time, it was a huge mistake for him to do that.
Today I listened to the program for the first hour. I have not actually listened for more than two years. It is so startling to hear Bob beating dead horses (straw men actually) repeatedly. I will stick to your summaries. Thank you.
I miss the time when the program actually dealt with........the Market!
Pavlov's Cat
McCarthy and Brady have said they and fellow lawmakers are now looking into possibly raising 401k contribution limits to $20,000 or higher. But they did not say how much of the contribution would be tax deductible.
Let's wait until the details of the plan are released rather than continuing to speculate. I don't feel that Brinker wasted our time raising awareness of this issue as it appears that the risk remains that the allowable amount of deducible contributions may be reduced. (Based on the text of the article and video linked by HB.)
I'm Bob from Oakland.
Thanks Honey for hosting this discussion. I really have trouble with the hair trigger criticism of Brinker's every utterance.
Clearly a lot of people get to this site because they have an appreciation on some level for the professional advice offered for free on Money Talk.
Clearly this a good time for him to point out the importance of 401k plans in the pursuit of critical mass.
To suggest that the matter is settled because Fox published a rejoinder seems also questionable.
I do strongly support the idea of debating political issues based on the facts.
That being said we are at an all time peak of politicians denying the truth.
.
Bob from Oakland.
If I have said it once, I have said it a hundred times: Of course it is not settled - that's my point. Brinker wasted everyone's time, including my own, by ranting about something that is not even on the table.
As for taking Fox News over Bob Brinker - that's your choice. They offered proof, Brinker offered nothing except his opinion.
As for having a "hair trigger criticism of Brinker's every utternance," - that's pretty much what this blog has been about for a very long time. But it is NOT about debating political issues.
You may decide that this is not the place for you.
Bobs always has praise for the easiest question that will not challenge his market timing. The person who asked about the 401k question today received a glowing praise. LOL
Pete from suite101
Bob from Oakland here.
If you make those whose opinions differ go away the quality of the dialog will not be worth much. I don't willingly participate in preaching to the choir dominated forums but want instead to use my intellect to separate the wheat from the chafe.
I remain astonished at the vitriol. I probably disagree with Brinker as much as others
who post here, but all these years later I still consider his view point and comments a fantasticly valuable service.
.
Bob from Oakland....I am offended that you think that I would censor those whose opinions differ from my own.
What is it you don't understand about I will not let this turn into a political site?
And if you think that what I said about Brinker today is vitriol - and then infer that I don't give him credit when credit is due, then that's your choice.
Maybe you can find someone who will do as so many callers do and kiss up to him no matter what he says or does. That "ain't" going to happen here.
Honeybee said...
"So I guess the lesson for Bob is that if he wants to build his program around a proposal being floated around Washington he should make sure he has the most up to date information before air time."
Honeybee,
You're asking THAT Bob to give up his tee times?
.
Bob (not THAT Bob).....Enjoyed your comment a lot, but you gave me credit for a good line that actually belongs to Jim. LOL!
Bob from Oakland: Chaff, not chafe. Minor correction. Vitriol? This blog is mild, believe me. If you want to witness vitriol go to SeekingAlpha.com and look at the Wall Street Breakfast blog.
Being a 'infrequent' listener to Bob, can someone please tell if he recommended shifting from cash to equities in 2009?
Today he commented on the long run up of stocks since '09, but was the audience invited to the party?
Thank you for a place to comment.
John
.
John....Bob Brinker did not raise any cash for the 2008-09 Mega-Bear Market!
He rode it down fully invested a total of 57%.
The last time he raised cash for a bear or a correction was in year-2000.
In regards to the 401k contribution controversy here, I would state that in general it is not a big deal to a huge majority of the US population. I have worked in several well compensated workforces and the tune of my colleagues was consistently and resoundingly the same. The $18 K or higher top limits were laughably unreachable . That is because after paying regular household expenses virtually no one could afford to sock anywhere near that much away.. Tax or no tax.
From Vanguard : Since the average income in America is $46,409, a significant number of workers are saving less than $1,856 annually. Contributing at that level over an entire 40-year career could produce a sizable retirement nest egg. However, total retirement savings data suggests that's not the case. For instance, contributing $1,856 per year over a 40-year career into an investment returning a hypothetical 6% annually results in retirement savings of $287,281.54. However, half of baby boomers have saved less than $100,000 for retirement, including 37% who have saved less than $50,000. Considering how close these Americans are to their golden years, those are hardly confidence-inspiring figures that suggest they'll reach that $287,281 level of savings.( this does undercut Bob's crying about a 'paltry' $2400 annual contribution limit.)
Overall, Vanguard finds that just 12% of plan participants are contributing the maximum amount they're allowed to contribute every year.
Bully for that 12% or about 1 out of every 8.(at Vanguard anyway)
On a positive note, I like the fact that this blog is updated so quickly😊🤗🤗
Thank you. I will enjoy reading your blog each week.
Does this blog still allow non-partisan discussion?
I'm in my early 60's and am still working with about half my net worth in my 401k plan. Having hit critical mass, I think my taxes will continue to be significant in retirement. I note that investment returns in my 401k will be taxed as ordinary income while my after-tax investment gains will be taxed as long-term capital gains. Why is the 401k better?
Uncle Mark said...
Does this blog still allow non-partisan discussion?
I'm in my early 60's and am still working with about half my net worth in my 401k plan. Having hit critical mass, I think my taxes will continue to be significant in retirement. I note that investment returns in my 401k will be taxed as ordinary income while my after-tax investment gains will be taxed as long-term capital gains. Why is the 401k better?
The big advantage of the 401K is the company matching contribution. If a persons tax bracket in retirement is lower than when they are working the 401K might also be better.
I've been a listener to Bob since the 90's and now I'm a bit concerned. Someone saying he rode the market down and held QQQ for 12 years without a return back to the high...
However, the biggest concern is over the current condition of the economy. We just did back-to-back quarter over 3% and over 5 Trillion was added since the election, unemployment is down, jobs and being added, outlook is up and for some reason Bob doesn't seem to be happy with the changes.
The market seems happy, the workers seem happy, business seems happy... What's the deal?
Did anyone catch how Bob mentioned that not allowing a state tax deduction means it is "Taxed twice"? The caller from Tennessee made a very good point about this being a difference in voting for high tax governments. I would argue that this is not taxing money twice, it is giving a bigger piece of the pie to your state government.
Steve in Harrisburg
I also, listened to that other show financial segment. The guests were also frustrated on the tax overhaul. They are spending to much time reshuffling the furniture on the Titanic deck. Much of it is a wash other than policy change that imply more fairness. Some of it meets that mark, but some of it is leaning to class warfare popularity. The guest explained for example that someone with wealth will keep money in stock market as the tax load is high as compared to adjusting investment for more efficiency within our economy such as funding a startup. It is always good to lower tax bar so intelligent decision making can ensue. For example when tax load is 15% investors don't even put that into the formula for decision making.
Interesting the history of change for Europe. Seems, the Greece thing, Spain, and Britain have had a effect to allow politicians a less restrictive path away from Socialism. The youngest of the politicians the more bold. Investors are thinking they will experience a renaissance in this region at growth rates above U.S. that hasn't learned the lesson yet. Much opportunity within this current history to invest overseas. This is in part why Vanguard Wellington added the mix. Interesting that S&P 500 achieves half of its' profits from oversea businesses. It's always been desirable to own these gold star companies, You know the ones that are highly rated per ownership/leadership of market sector. Their stock drops less in down turns and have more stability per breath of investments. Overpriced probably so, but for good reason.
The 401k reduction was never going to happen. Whoever floated that lead trial balloon didn't even put their name on it. If they did they should have called the political suicide hotline first. It felt like Brinker was almost inciting his audience to riot and promoting mass hysteria.
Unfortunately our horse (3rd) running Sunday finished last! Win some and lose some.
This will be a wild and hectic week.
I do not believe anyone has the real scoop on taxes. Wait and see in the middle of the week. Regardless of its nature, there will be a lot of revisions before it is up for a vote. A major handicap is the fact that the democrats are not part of the process. Too, some republicans may not support the legislation.
I guess Yellen has a shot but doubtful.
Gabe
.
Steven....That is exactly the way I felt about what Brinker was doing yesterday!
And sadly, there will be many people who will continue to believe what Brinker was saying.
.
Karl Jay....That was me that said this: "Someone saying he rode the market down and held QQQ for 12 years without a return back to the high..."
Not only did I say it, but I have the documentation to prove everything that I said.
In addition to what is documented on my blogs over the years, I have Marketimers back to January 2000 that I can quote or even make screen shots from.
However, my readers over the years can also testify that everything I write about Brinker is true.
www.post-gazette.com/business/money/2017/10/29/Republican-leader-offers-little-clarity-on-401-k-plan-in-House-s-tax-bill-as-it-loses-home-builder-support/stories/201710290159
Quote-
"House Republicans’ tax-overhaul bill will raise the amounts that American workers can contribute to their 401(k) retirement accounts, House Majority Leader Kevin McCarthy said Sunday — but he offered no answer to an important question for many savers:
Will the bill reduce the annual contributions that savers can make from their pretax income while increasing their after-tax limits?
McCarthy did little to clear up the matter Sunday.
“We’re going to raise the amount you can put in” a 401(k), he said on Fox News’ “Sunday Morning Futures” program. He also said: “And if you can do it and not be taxed later on, there is a way to make Americans more self-insured, have greater resources.”
The phrase “not be taxed later on” suggests that Republicans are considering increasing after-tax contribution limits for so-called Roth 401(k) plans. Workers who use the Roth option pay taxes on their income before making the contributions to their accounts. Then they receive tax-free distributions in retirement."
-End of Quote
If they increase after-tax contribution limits will they also try to decrease tax-deferred (pretax) contribution limits?
I discontinued bob's investing letter. Too may service issues screwing up he process. I'm turning to Vanguard and other business news outlets. So far, I am doing very well with out the letter. Reading the blog is also on my agenda. I do wish that we reduce political contend...each of us may have very different views. .It raise too many harsh interactions amongst the bloggers. HB has stated she has a special blog for these discussions. We should use it.
Gabe
Uncle Mark asked what is the advantage of a 401K? Ditto to what Jim answered, company match and the possibility that when the $$ comes out and is taxed at ordinary income your bracket MIGHT be lower. (My emphasis on MIGHT).
Other advantages I see: If your benefits dept. knows what they're doing you'll have a mix of index and managed funds to choose from and the mix will probably be as good or better than what you might get by going to a financial advisor.
The forced saving aspect, in effect, dollar cost averaging in with each pay period.
No on-going tax on dividends and capital gains in the 401K account.
Midday, AMZN and MFST doing well in a down market!
Gabe
.
Note to Jerrod....It does....but if true, he will let me know via email.
Interesting.....Bogle does not recommend international investing while Vanguard recommends 20 to 40% in international equities. Go figure!
Gabe
Uncle Mark asked what is the advantage of a 401k over a taxable account. Both have advantages and disadvantages so it is great that you have some of both for tax diversification. I agree with the points made by Jim and frankj.
The 401k/IRA was the fastest way to build net worth over your working years because you could stash the money away without paying tax up front. Once you stop working (presumably prior to age 70-1/2), the money you have in taxable can be used for living expenses until you start mandatory withdrawals from tax deferred accounts. During the retired period prior to Required Minimum Distributions (RMDs), you may be in the lowest tax bracket of your adult life so you will have the lowest possible capital gains rates (maybe zero) for sales of your taxable funds. During this period of time you may also be able to make substantial annual partial Roth conversions at low tax rates, thus reducing the impact of RMDs later and lowering the overall lifetime taxation on your tax-deferred accounts.
Phasing in corporate cuts suggestion is what causing the market to retreat! If the market continues going south.....buy the dip?
Gabe
Liesman of CNBC postulated that market retreat was misdirected if based on phase in announcement. His argument is that tax cut/reform is more likely to get through using phase in, and that actually tax cuts/reform is not in the market.
Based on this the answer to dip buying would be yes.
My view we could be in for some sideways action digesting gains, my reads on market breadth were getting a bit foul. Got a Hindenburg Omen on 10/25/17 followed by two back to back confirmations on 10/26 & believe it or not 10/27. Market felt a bit sloppy even Friday with Nasdaq gains.
Whatever the reason if big dip then buy if in it for long term and appropriate for your asset allocation.
smile
I want to add something to the summary I wrote on the third hour guest, Dr. Kaufman, economist. Bob asked about the national debt which stands at $20 billion plus. The guest said correctly, that debt is necessary for an economy to expand.
He went on to suggest that households and businesses have borrowed a lot and if more borrowing is to take place for expansion it is the gov't who can do it.
In the past Bob has pounded the table about the high national debt. He said when interest rates normalize the interest we need to pay on this debt will gobble up an even larger part of tax revenues coming in to the treasury.
I'm puzzled as to why he didn't follow up with Kaufman as to the hazard of continuing to expand the federal debt when he (Bob) has been a debt hawk on the show.
If you read Pat Buchanan post and then John Mauldin you get a one two punch on our financial risk going forward. I think the business as usual Wall Street rags have it wrong. Yesterday's hiccup was not because of phasing in tax cuts. More to do with the State of the State and the DC swamp actions. It may be that investors had seen a light shining in DC and they hoped the light will disinfect the corrupt political trade. Yesterday, it looked like the swamp was winning.
Mauldin piece was a reprinting of Andy Xie post. This guy has a international viewpoint. I do think the international communities attempted to print their troubles away or monetise debt. This is being accepted as good practice because of the long history. Problem is we may be within a international bubble that won't be so easy to get out of. Add to the mix that we often hear of the Baby Boomer wealth accumulation as one of the main reasons for stock growth and the concern when investments get pulled for retirement expenses. Xie thinks the struggling youth are upset and willing to accept a fundamental change in U.S.. They will vote Bernie to get some easy life style. May the CIC success or lack of affect our future financial wealth?. Also, that investing now must be an international venture as the large corporate world has already understood.
Geez, I just can't escape from the jaws of bezos.
These studios are several blocks away from my dentist's office.
Amazon Studios, IMDb Moving to Historic Culver Studios Site
https://goo.gl/NfbEs1
Scooped up a few bucks today!
Gabe
OK so as not to leave the subject discussed October 24, 2017 at 3:40 PM of Asset Allocation and impact of Social Security, pensions and annuities unresolved, I ran across two different perspectives on the subject. Honestly they both had an impact on my method of asset allocation.
Jack Bogle represents the first view:
You have to include Social Security in your fixed-income position
"It’s very large depending on the circumstances of the investor, to capitalize the value of that Social Security is going to be as much as $300,000 to $350,000. So if you have an all-equity plan outside of that for $350,000, you're 50-50. Social Security, you don't have a capital investment in it, you have a stream of income, which depends on your age and actuarial things like that.
So it's not just put the math in and do it — it's consider it. The basic idea of retirement income is, to me, to get a check, two checks every month, one from your fixed income and one from equity account. And you want them to grow over time. Social Security is a cost-of-living hedge, and in the equity account dividends grow over time.
Investors make a big mistake by thinking too much of the value of the account and not enough about the monthly income they want to get. We could have a significant decline in the market with dividends unchanged."
---
On the other hand you have: the opposing view from Paul Merriman
"If you’re receiving $32,500 a year in benefits and you expect to live another 20 years, you might think you have an asset worth $650,000. But those payments will last only until your death; at that moment, your “asset” vanishes completely..."
(smile here this is not quite true in that Social Security has a Survivor's benefit amount which you can get from your SSA statement which I take into account as described below)
---
To recap what I have done personally, hopefully it makes sense to anyone interested in this issue. I am taking Social Security and Pensions into account as I near and when I enter retirement for asset allocation purpose.
I found the best way to approximate the value of these annuities is simply to figure out the 1st year income stream from these annuities and then multiply it by your Life Expectancy (LE) which you can get a view here: Life Expectancy Calculator compliments of SSA (changed to Bogle LE method instead of my simple formula and you can adjust LE up or down a skosh depending on your expected health)
Merriman made me alter my thinking a bit by posing the question what happens if one of you dies. Well what this did was it made me calculate the Capitalized Values separately for my wife and myself. Then what I did was I took the lowest of the two results and used that as my imputed or as Bogle says Capitalized value for purposes of asset allocation as opposed to using the total of the annuities for both of us which gives a more conservative Imputed or Capitalized value result.
When I did this the adjusted asset allocation figure was something like 60:40 compared to the unadjusted figure of 85:15. Note to get down to the adjusted 50:50 mark all I need to do is drop the unadjusted allocation down from 85:15 to about 73:27. I added a little trigger variable to my worth spreadsheet which does this.
Another adjustment I will make as I enter retirement is to move toward dividend paying equities to augment the income stream.
Eureka that calculator I referenced AA Calc was not too far off from the result discussed above, probably just coincidence.
smile
other references:
http://www.morningstar.com/cover/videocenter.aspx?id=615383
http://www.morningstar.com/cover/videocenter.aspx?id=702029
Capitalizing the SocSec income stream: The interest rate you choose matters a lot. Varying it, especially when the income stream is long can lead to big differences in the computed value of the asset represented by the income stream.
An alternate way to treat SocSec is to simply net the income from it against your expenses. It will cover some, but probably not all for most people. The expenses left over will have to be covered by your fixed income and equity investments. You can adjust those accordingly.
I saw this on Bob Brinker Jr's twitter:
https://twitter.com/TruthGundlach/status/925530448612114432
I’m on Bob Brinker’s “MoneyTalk” radio program this Sunday. MT debuted Jan 1986 and has helped more investors than anything else I know of.
The owner of that twitter account is Jeffrey Gundlach, the CEO of DoubleLine.
Wow, now that's what I call a "superstar" guest! Could be very interesting if Brinker tries to discuss duration with Mr. Gundlach. We all know Brinker sold DLTNX back in January because he thought the duration was too high.
I read that BB is either a hack or has helped more people than anyone. So about like HBBBHB.
The best advice I've gotten, was self examination. Meaning first you have to have rock hard analysis of your cost of living and work to minimize that. You want stability in retirement and safety. No better alternative than to increase your cashflow. This works well with action to minimize tax load. Then ponder your retirement life style and cost out those estimates. You have to have a self analysis meaning their is no magic number the experts can give you. This is all about life style and personal choices. It is a fun exercise to think out of your current box, too. Living abroad for short extended vacations really can drop your travel costs per month. Not having a large house sitting empty is a waste as well. Multiple expensive cars are a waste as well.
My thinking is the reverse mortgage is a ripoff and same with annuity, life insurance, and long term health insurance. You can do a better job yourself with these capital requirements with plan of action and improving your financial competence as well as maintain good health habits. Most of retirement risk is poor health, so that is up to you, personal, and low cost. You can maintain physical fitness, healthy nutrition, and living habits. Know that walking, biking, and driving is by far the largest threat of shorter life. If you have good health and your spouse has good health you have a good retirement, no matter what.
Yes, their was a financial group that did a historical analysis of investment percentages and what percentage was the safest. The conclusion rocked the investment advisor world and most won't accept the results. It was 80% equities! The biggest threat to finances is running out of money and even retirees had to be invested. It makes sense to my thinking. We have a country more equipped to safeguard life style and investments, but that can change. I just read an article in which the Fed Reserve has no magic and as perplexed on the low wage labor rate as anyone. That they are and will use out of date data and analysis. That their actions may temper economic disruptions on small scale, but their actions make actually produce eventual tsunami that otherwise a swale if normal investor risks experienced. Investors are basing it all on fed reserve policy, not good. So, we have inflation and unknown expense concerns that can be addressed through the higher rate of return on stocks. Stock risk can be managed by your increasing competence and experience within the activity (usually). Also, citizens are worried of the future of entitlements costs. I remember early in my career the common wisdom was to not rely on Social Security. Medicare is even in bigger quagmire. We could have good solutions, but the need is to important to voting public, hence every politician has their hand in the pot attempting to stir up angst and unrest to hurt the opposing team. Government action is the problem not the solution. I'm really impressed with Samaritan's solution to health sharing costs. Dirt simple and just about zero overhead burden. The blog is full of ways to keep costs down and health up. We have incredible control over health costs. Most of the public only learns from press the urgency of increasing the fed control and tax burden to allow them more control.
Just utilize a spread sheet with a retirement simulation. You can play what ifs and keep it updated. Keep in mind the go/go years are the most fun and expensive. Your spending should taper off the older you get. Think about your monthly expenses and minimize all of it. You may only need seasonal retreats and RV recreation. The slow go and no go years a residence close to family and friends. Some will change statehood residency to keep costs down. The biggest challenge is the strategy to minimize tax load. You need to even out income to lowest attainable bracket. This exercise proved to my thinking that spending money with out Social Security payments was the key. And maximizing the annuity aka Social Security for both spouses the stabilizing event. Minimizing cost of living the real juice for care free and having a HSA for long term health cost needs or legacy.
.
Not only is a superstar guest, but he is a Bob Brinker sycophant who makes a lot of money on Brinker having his bond funds (instead of Vanguard's) in Marketimer.
This is one of Gundlach's Tweets:
Jeffrey Gundlach
Verified account
@TruthGundlach 13h
13 hours ago
I’m on Bob Brinker’s “MoneyTalk” radio program this Sunday. MT debuted Jan 1986 and has helped more investors than anything else I know of.
.
Jim...Brinker now has DLSNX in his Marketimer income and balanced portfolios.
Jim...Brinker now has DLSNX in his Marketimer income and balanced portfolios.
Yes, I know Brinker still has Gundlach's Low Duration Fund. If Brinker mentions this fund to Mr. Gundlach however he might be curious as to why Brinker does not also own the Total Return Fund since that is the Fund that Gundlach became famous with and the one most people familiar with Gundlach's reputation want to own. That is where they could get into a back and forth discussion on duration since I'm pretty sure Gundlach is not as bearish on bonds and interest rates as Brinker is.
Yellen vs. Powell...........Powell, but I prefer Yellen!
Gabe
Honeybee said...
>...but he is a Bob Brinker sycophant...
Honeybee,
Your "tell it like it is" commentary is WONDERFUL!
Always enjoy your site. Many thanks to you and the entire BRT team!
JC
re: "Capitalizing the SocSec income stream", neither Bogle in his example nor I in my adapted method are using interest rates. A closer read of that post may help reveal this.
The answer to the question for me and Bogle was yes include annuities to figure your asset allocation.
Inflation and outliving your asset producing income stream are among the enemies going forward in retirement. Asset allocation done properly helps in this fight.
For me at 62 my adjusted allocation is 60:40; unadjusted is 85:15, same coin different perspective.
Understanding my income streams and my outgo (budget) are crucial.
smile
Has BB ever discussed how much revenue sharing he enjoys in his “personal account” for having recommended non-Vanguard holdings in his for-profit newsletter?
Incredibly, the following actively managed funds charge a 12b-1 fee of .25%!
AKREX
MWCRX
DLSNX DoubleLine Low Duration Bond Fund
Overall, redemptions out of high-cost actively managed funds has been HUGE!
Net inflows into ultra-low or low-cost index/etf offerings continues unabetted.
Powell is preferred as Yellen doesn't want to axe Dodd-Frank. Dodd-Frank has been amended, so it isn't the biggest problem in the financial sector anymore, yet the legislation has done much damage. Community banks for one. As always the mindset in Washington is that when the country gets in trouble, its the politicians that can come to the rescue with evermore regulation to control our messy markets. If they can only get their brilliance on paper to control the misfits. In open markets to many people think that they know best.
Also, Powell basically another Yellen. No change in operations. Trump puts that character trait as a primary concern. We need no sudden change of horses in the stream.
Anonymous- there is no magic percentage to thwart all retirement concerns. For one it is a dynamic problem. Meaning if financial concerns of international and U.S. are high go to cash and income for safe haven. If markets and economies are in the sweet "no problem zone" go 100% growth equities. Really, not much changes in retirement other than you need to plan and keep 2 or more years of expenses in safe bunker. No problem if you feel better in old age to take it all out for max security especially if your enjoy life more and no extra income needed. Others just love to play the game. Putting money into solitary stocks not much of a problem either if these stock are rated best in class. I do know many a widower that feel more comfortable buying Exxon. Around here Stryker supports thousands of widows that know one thing financial, that Stryker is a good investment.
A late entry today finished 2nd. Three (3) horses going this weekend......possibly four!
Unfortunately too many divisions in the GOP to move this tax initiative. If it were up to me, I would go for a flat tax regardless of its regressive nature. Just a thought.
Powell will be just fine.
Gabe
What the hell is going on??
We have a government debt bubble.
We love bubbles.
Central banks have pumped air into the global economy.
Japan is the Canary in the coal mine. Watch it.
None of them KNOW how to unwind.
Irrational exuberance on steroids.
I've seen this movie before.
It does not end well.
I just don't know if it is a 1&1/2 hour flick or a three hour epic.
Pavlov's Cat
Smile: You got me! I didn't read your post as closely as I should have. The way you describe how to evaluate a stream of fixed income would seem to work. I have also read that a way to evaluate a stream of income like SocSec is to figure out what size of an annuity it would take to produce that. I have not bothered to try that myself.
I do know that a long time ago, BB used to talk about a shadow portfolio (or shadow asset) that would represent the size of a fixed asset holding that would produce the income stream in question. Capitalize the annual income by some interest rate. This is what I was referring to when I said the interest rate made a big difference. I have read that this is not a good way to do this. And BB has not mentioned this approach for a very long time.
The asset allocation exercise was outstanding for me. Coming out of it I feel like I learned so much, and am at peace with my current allocation (unadjusted 85:15 and adjusted 60:40. If I want to come down to adjusted 50:50 when in retirement I now have a new trigger variable in my worth spreadsheet). Magic, I recommend the process highly.
Brinker got me onto this concept of imputed value of annuitized income streams such as social security and pensions.
Running across that aacalc.com asset allocation calculator was also interesting. Great result and variables, Monte Carlo simulation, along with actuarial input. It actually forced me due to input required to project a spending or retirement consumption level or budget. Results came real close to my final assessment.
Then researching further and finding the Bogle input and the offsetting Merriman concepts on the subject led me to the final methodology which is actuarial LE based Capitalization of Annuities; very liberating. Yes annuities are a part of my asset allocation. I now track both the unadjusted allocation and the adjusted. Risk Tolerance assessment is key.
You have to be comfortable with your asset allocation or risk tolerance. With close to 40 years of investing under my belt and lots of cues to look for I will be looking for high risk exit points and low risk entry points. I know it is difficult to call tops and bottoms as the emotions interfere with this process. Part of the psychology of being able to buy the big dips like 3/9/09 like I did is control over your emotions and proper assessment of risk. Here's to beating the market.
Don't do something, just stand there
"A 50 percent decline—and I've been through about five of them—it gets very difficult to stay the course," Bogle said. "But it's been right all through my career, and I think it's going to be right again today. Don't do something, just stand there."
With proper understanding of my asset allocation and income streams in retirement and consumption level in case I miss a top or two I feel better after going through this AA exercise.
Riminds me of the saying it's not timing the market but time in the market which is the key. Looking back on the '87 crash it is easy for me to understand this.
As Gabe so eloquently put it: "It all comes out in the wash!" I would add to that you still have to know whether you should use Tide HE or Unknown Brand X for your machine to give you the results you want.
smile
Interesting (blue-penciled) article from StockCharts.com
The Traders Journal
Now Is the Time to Brush Up on Your Selling Disciplines
Gatis Roze | October 27, 2017 at 11:00 AM
We’ve all heard the cliche that “shutting the barn door after the horse has bolted” means one is late to action after the damage is done. Yes, it’s human nature not to dwell on negatives when the stock market ride since March, 2009 has been so exhilarating. Consider these returns;
Netflix (NFLX) is up more than 3,400%
Amazon (AMZN is up more than 1,300%
Apple (APPL) is up more than 1,200%
Cyclicals Sector (XLY) is up more than 500%
Industrials Sector (XLI) is up more than 450%
Technology Sector (XLK) is up more than 400%
Vanguard Total Market (VTI) and S&P 500 (SPY) both up more than 300%
You get my point on the performances. Folks, these are not normal historical returns over an 8-year period. This is an elastic rubber band that is being stretched. I am not prognosticating about when it will snap back. I’m only suggesting that you polish up on your selling disciplines with the expectation that it will snap back eventually.
Buying is easy. You always have lots of company. Just google stock market books. The overwhelming majority of those books are all about buying. Don’t quote me on this, but intuitively the ratio of books on buying equities versus selling strategies is 1,000-to-1. It’s always been that way.
At the risk of sounding like former vice president Spiro Agnew who complained about “nattering nabobs of negativism,” I’m merely suggesting that preparation is prudent and good. On the buying side, you often receive many different invitations to participate. Not so on the sell side. No invitations will arrive, trust me. It is a solo activity and one must be bold!
JC
JC: It is different this time....hopefully!
Gabe
It seems to me that in the next five years and after that retirees will not have nearly the pension income that current and previous generations have had. I would like to retire to the Sun Belt and buy a house there to use as a base, and travel north in the warmest months. Who is going to buy Sun Belt houses if nobody has nice pensions anymore. Perhaps I will continue to full time RV until this demographic change shakes out.
It's being reported that the GOP tax plan makes no changes to the 401K rules.Limits stay the same. Relax Bob!
In its present form, my CPA informs me that the GOP tax proposal will increase my taxes by reducing both my personal and business deductions and credits. So........
Gabe
Frankj, excellent recall on your part re: the "shadow portfolio" concept Bob use to talk about. I always thought the concept of including annuities like pensions and social security as an asset for the purpose of asset allocation was a good one. As you mentioned the weak part of the mechanism is - what interest rate to use over a couple decades into the future. As you mentioned Brinker stopped talking about this approach.
I always try to practice Occam's Razor and after reading Bogle it was clear that the actuarial method for this calculation was as simple as you can get providing a good conservative valuation since COLA's are not adjusted for. Of course I tempered it further by only using the lowest of the two values of the separate annuities between my wife and I. This last part was Paul Merriman's influence on me and my attempt to address the issue of one of the income streams going away.
smile
Gabe: My tax preparer (me) looked over my 2016 return and estimated that the GOP tax proposal, if applied retroactively, would have more than doubled my federal tax by eliminating the state income tax deduction, eliminating personal exemptions, and bumping me from the 10% to 12% bracket. But I'm not concerned about it, because I know my behavior will change as needed to minimize future taxes, whatever rules are ultimately enacted. I also like the idea of simplification in which I will probably never have to itemize deductions again or go through the hassle of bunching deductions into alternating years in order to gain deductibility. Will also be nice if the 12% bracket is extended beyond the existing 15% bracket, as proposed.
.
Some High Points of New Tax Proposal as announced today:
Lowering and Simplifying the Individual Tax Rates: The GOP proposal provides long overdue relief to millions of Americans by simplifying and lowering the individual tax rates to 12 percent, 25 percent, 35 percent and 39.6 percent. For married couples, the 25 percent rate starts at $90,000, the 35 percent rate starts at $260,000 and the top rate starts at $1 million. The bill will also double the standard deduction to $12,000 for individuals and $24,000 for families.
Lowering the Corporate Tax Rate: This bill will immediately lower the corporate rate to 20 percent -- the rate demanded by conservatives for months -- making American businesses more competitive with the rest of the world and providing hard working Americans with a much needed raise. Rates for small business pass throughs were also reduced by 15 percentage points, down to 25 percent.
Tax Free Entrepreneurship (Full Expensing): The GOP proposal includes full expensing for some investments that phases out after 5 years. This is a necessary boost to investment in the short-term, though improvements could be made as the process advances.
Establishing a Territorial Tax System: This bill attempts to eliminate the double taxation that defines our current worldwide tax system, though there are some provisions that could undermine the full value of that reform. Stay tuned for a more in-depth analysis.
Ending Cronyism in the Tax Code: Conservatives have also been fighting back against big-government special interest groups. The plan eliminates many special interest provisions including the State and Local Tax Deduction (SALT), though it allows a write off for property taxes. If not for conservative pushback, the swamp creatures would have been far more successful in defending the broken, corrupt status quo.
Here are some other things included in the bill you should know:
Repeals the Alternative Minimum Tax
Child tax credit goes to $1600 from $1000 plus additional $300 credit for parents and non-child dependents.
State and local deduction converted to property tax deduction with $10K cap
401k’s are untouched
The Death Tax exemption will be doubled and eventually phased out after five years.
Preserves the home mortgage interest deduction for current mortgages and limits the deduction to $500,000 for new mortgages.
Preserves the Charitable Tax Deduction.
The WSJ had a piece today Nov 2. In essence, the article said that this tax proposal by GOP was a decrease of taxes for Corporations and a increase of taxes for individuals.
The top 1% will profit nicely which will make my son a "happy camper" if passed!
Gabe
gabe said...
JC: It is different this time....hopefully!
----
Gabe, I don't share your enthusiasm. This market is desperately in need of a "health-restoring" correction.
If that doesn't happen soon, I may need to intervene in the market to insure (100% probability) a correction.
How would I do that you ask? All I need do is to get back in the market - buy a few stocks and ETFs. WHAMO! Within 24 hours a correction will commence!
JD
.
Note please - on this blog....Tax cut proposals: FACTs only unless you are a tax expert and can back up your opinions with FACTS!
.
Note to the person who sent the taxes-in-retirement comment.
I almost never publish anonymous comments that could be spam since if they do not include some kind of identifiable handle.
The House tax proposal a step up. We are just weighing in on the exact winners or losers, nonetheless a much better tax code.
Biker, yes, everyone will adjust to tax code. This is simply the lunacy of the estimates of loss of tax revenue. Every hard core high tax system was frought with loop holes. It was just an exercise to appease the masses that want to hammer the rich. You see they are rich only because we are poor. Also, this exhibits why government regulations are feckless. Meaning government bureaucrats are not more gifted then the average citizen. They have no omniscience, only popularity hounds. This logic brings me to the conclusion that we could do more effective and efficient tax system to support federal actions than the Fair Tax. It requires no IRS and is just about zero cost to conform. I just read that the IRS is the U.S. equivalent of KGB. Mostly true.
I probably am a bit premature in this comment since we do not yet have a tax bill signed, sealed and delivered.
That said, I am at a loss as to how we could accomplish effecting huge changes in the current Federal Tax Code (numbering close to 75,000 pages) in such a short amount of time (several weeks) and with such a contentious House and Senate.
JC
JC: Are you suggesting that you have the "luck" of a loser?
1 of 2:
gabe said...
JC: Are you suggesting that you have the "luck" of a loser?
Gabe,
No, not really. It's just that I am having some temporary difficulty in reading the market tea leaves.
Additional, my official THAT Bob Market Touchstone seems to be encountering some "issues" lately.
--------------------------------------------------------------------------------
2 of 2:
Here is a piece from Schwab regarding Tax Reform:
House Tax Reform Bill: What Investors Need to Know
By Michael T Townsend
https://goo.gl/grivqT
JC
.
Jerrod...That's a great explanation of the House Tax Reform Proposal from Schwab.
Here is the current advice for investors:
Bottom line for investors
We don’t suggest investors take any action at this time. The release of the House’s bill is the first step in what will surely be a lengthy process, and changes to the bill are inevitable. The biggest stumbling block remains the Senate, where getting to 50 votes isn’t a sure thing. Clarity will come only as the process unfolds in the weeks ahead.
Here's other a couple of other items that don't seem to have been widely reported:
Quote:
Can I still sell my house and get tax-favored treatment?
Yes, depending on how long you plan on staying. The "two of five" rule that excluded up to $250,000 ($500,000 for married taxpayers) in capital gains from the sale of your home would be changed to "five of eight." That means that you must have owned and resided in the house for at least five of the last eight years in order to qualify for the exclusion. Additionally, the rules would limit the use of the exclusion to one sale every five years (instead of one sale every two years).
from:
https://www.forbes.com/sites/kellyphillipserb/2017/11/02/from-mortgage-caps-to-tax-brackets-how-the-house-tax-bill-could-impact-your-taxes/#6ed670bdeb83
Quote:
What happens to investment income?
The tax plan does not make direct changes to how income on investments is taxed, but what people will pay could change as a result of other provisions in the plan.
Today, the same rules apply to dividends and capital gains, but differ depending on an individual’s earnings and how long they have held an asset. Individuals who make under $37,950 a year pay no taxes when they sell an asset after holding it for a year. Individuals who earn more than that but less than $418,400 a year pay a 15 percent rate long-term capital gains rate and people who earn more than that pay a 20 percent rate. For short-term capital gains — for assets held for less than a year — people pay taxes at the same rate as they do on their ordinary income. The same rates apply to dividends, but investors need to hold the asset for 60 days to qualify.
For individuals earning more than $200,000, they must pay an additional 3.8 percent tax on capital gains and dividends, thanks to a provision in the Affordable Care Act.
The Republican tax plan doesn’t change these rules directly, but by setting new income tax rates, it means many investors will pay less in taxes on short-term capital gains and dividends because their ordinary income tax rate will fall.
from:
https://www.washingtonpost.com/graphics/2017/business/tax-bill-q-and-a/?utm_term=.d131b5f82720
Comment: The quote immediately above seems to imply that the income levels at which proposed LT capital gain rates step up will not be tied to any of the 4 new proposed income tax brackets.
I don't see any problem with lowering the amount that is deductible in a 401-k. It doesn't limit the amount you can save. Any person may save 100% of their salary if they like, it just won't be tax deductible.
My thinking is that there will be no tax reform just as there was no Obummer Care reform. Keep in mind the Washington Redskins owner decided to change the name of the Redskins, the name is now "The Redskins". He dropped the word "Washington" as Washington can't agree on anything so they are called a "Do Nothing Congress".
This will no doubt impact my retirement funding plans. Probably allow larger shift to fund Roths if needed. I did read they were not changing SS tax schedule.
I don't understand politics, news media, or analysis of tax revenue. These people all communicate that the government funding is an absolute requirement. That if revenue lacks we have national debt. They present it as an absolute truth. When did this truth pollute the tax payer brains? And when did the House Budget authority go totally fangless? This branch of government used to be the all powerful authority of reeling in expenses.
I was channel surfing and stumbled upon a Huckabee show never seen before. His guest was a Texan, that invent "Direct Pay" type of primary health care. No insurance accepted. Wow, lots of attractive info per experience. This is suppose to gain in popularity as it pretty much solves our health care concerns. It looks like the future will include high deductible health care insurance. This will cover the rare exposure of low risk, but high cost. HSA type saving will play into this, but probably best to have a $10k deductible. This insurance does not have a connection with Direct Primary Care, but fits in nicely for health insurance needs.
The typical Direct Primary Care setup is monthly fee for access. Cost are typically lower than what we now pay in deductibles. Some stock the common meds and all have large discounts with labs and pharmacy. They keep your records and incentified to keep you living a healthy lifestyle. Lots of preventative exams and advice. Remote access I would say excellent if on the road. The one I'm interested in has an open house tomorrow. I will go check out. Grand Rapids, MI is gaining much respect for health care solutions. Also, education and quality of life. Craft brew beer capital, need I say more.
Worth reading if this subject is of interest to you:
Evaluating The Proposed Individual Tax Reforms Under The House Republican Tax Plan:
https://www.kitces.com/blog/tax-cuts-and-jobs-act-2018-house-gop-tax-reform-proposal/
I'll paraphrase a paragraph from page 3 of Bob's Marketimer,
"all" of the the last 13 mid term elections have had a market decline of 7.4% to over 20%.
( anyone care to verify that)
Then Bob claims,
"to be optimistic that any mid-term election year pullback that develops
can be contained within the correction range of less than 20%."
I have only looked at 2006, 2010 and 2014, they were all up years,
how can Bob justify his writing.
Lamont,
I'm sure Brinker is right about the corrections. Sometimes there are powerful rallies after the correction is complete so that would explain why 2006,2010, and 2014 were up years.
Lamont: Maybe this helps:
https://www.cnbc.com/2014/11/04/why-investors-love-midterm-election-years.html
JC
That resonates with me. My dry powder is sure to trigger a correction when I employ some.
Pavlov's Cat
Honey you are smart I enjoy your takes on everything , thank you!
So, with BB info and historical returns after the mid terms per the CNBC article one could surmise a correction per fear going in to election and to buy the drop a good thing. That would be typical giving all the political energy devoted to fear factor voting. I sold some because of fear mongering hysteria of the Brexit, but waited for the inevitable bump up after the crash. Stupid to let emotions enter into decision making. I did only a fraction as this is good to moderate decision making.
Interesting the CNBC article '14 had a caveat at the end with scary concerns. Can you imagine those that went cash back then. Some professional money mangers did. This may be a good exercise in understanding commercial financial advice. Worthless. I heard it said that the markets can stay irrational longer than you can stay solvent. Timing the market without your own set of guideposts such as researched and setup before hand as quant analysis and TAA method would require luck. It still requires luck, but at lease you can improve the odds. Staying put is good for most, at least with a long time horizon. Most do allocate to safe guard some portfolio and do so more in riskier times.
We sometimes forget that stock or equities are businesses that earn money. They earn money every month, hopefully, even if their stock price is down. So, even within equities there is high and low risk or speculation. For example Amazon and Tesla valued at what they might do in the future. Investments in blue chip, solid growth, international stability, and high value products invite much less risk. They would be priced high for this value, but how do they compare to bonds? May we achieve security just buy purchasing premium grade stocks? That hopefully pay more than bonds as equities actually have earnings with upside appreciation. I'm not thinking of 500 stocks but half a dozen of the best as replacement of bonds. I don't know if this is credible thinking? Did BB ever comment?
I don't see much volatility loss on stock picking other than conservative bond stock funds. Maybe Buffets advice to his wife, if needed, is to just go with S&P 500 and forget it. That will work and overall probably better if you don't need the money at given time periods. The rest of us hedge with some bonds. Problem is bonds will falter a bit if interest rates go through period of rising and they are not a big return currently and not expect to.
I'm leaning to the TAA system and can't find much fault with it. It's not a gimmick. You can use S&P 500 for the equity part. That's a good start. Making a half dozen trades per year is not hard to accomplish. Historically, the investment strategy minimizes loss or draw down. You will not gain as much in late stage bull market. A typical goal for someone knowledgeable, experienced, and disciplined would to average 10% return with 10% max drawdown. You may make more with the buy and hold during stock market run ups, but you will also, suffer the big dips and loss of spending money in the dips. This TAA system seems perfect for retirees. BB should talk more of investing other than bonds and index funds?
Trees: You might want to define or provide a reference for the TAA method/system.
Well, I've read a blog for some years on this personal journey of very capable guy testing out different quants. He explains the long path of his discovery and how he arrived at his present investing strategy. He was a electrical engineer within silicon valley trade. Now he is in early retirement and does invest for sole income. He always had financial interests an is trained with masters in the subject. It's nice because it is a person with mutual interests. Not a financial house, but a real person with abilities that I respect. He is playing with his money and other synthesised accounts for testing. Just now he hooked up with coworker for newsletter. His friend is statistician. Sounds to me these guys could provide the real deal without the selling hype. Check it out an let me know what you think. It is written for the part time investors and avoids the hype. He brings you along with him for the learning. I would definitely put him in the category of expert now. He does know that simpler is better and to present data in easy to understand format. Check out "Invest for a living" you should be able to find it.
The direct pay open house was a family fun night, pure entertainment for the kids and get to know others. Good thing I checked it out before the trip. They have a showcase on Tuesday, but now I hear we have another commitment. Anyways, eventually I will get more info on this.
My post about the Flat tax was not entered on the blog. Basically, I indicated that there were many competing interests that would possibly impede the GOP proposal.........So what about the Flat tax by Forbes?
Gabe
ETF Heyday Is No Bonanza for Wall Street
The old commission model is shrinking as more advisers get paid directly by clients – a move that favors low-cost funds.
The rise of cheap exchange-traded funds has the investment industry fighting over scraps to get paid. Investors poured a record $380 billion into ETFs this year, much of it into ultra-low cost index funds. The trend leaves asset managers, brokers and advisers scrambling for a slice of a shrinking pie.
You can read the entire article at today’s Wall Street Journal
http://investingforaliving.us/
Is this what you're talking about?
frankj Unable to visit link you provided -- Harmful web site blocked
John Bogle on Tactical Asset Allocation:
There is a third option [other than fixed asset allocations], but only for bold and self-confident investors. It does not abandon the "stay the course" principle, but it allows for a mid-course correction if stormy weather threatens on the horizon. If rational forecasts indicate that one asset class offers a considerably better investment opportunity than another, you might shift a modest percentage of your assets from the class judges less attractive to the class judged more attractive. This policy is referred to as tactical asset allocation. It is an opportunistic, transitory, aggressive policy that - if skill, insight, and luck are with you - may result in marginally better long-term returns than either a fixed-ratio approach or benign neglect.
It's grand to possess skill and insight, though all of us tend to overrate our abilities in both areas. But luck, too, plays a role. Many investors are right, but at the wrong time. It does no good to be too early or too late. Tactical asset allocation, if the strategy is to be used at all, should therefore be used only at the margin. That is, if your optimal strategic allocation is 65 percent stocks, limit any change to no more than 15 percentage points (50 to 80 percent stocks), and implement the change gradually. The prospect of having the skill, insight, and luck to eliminate your stock position overnight and restore it "when the time is right" is, in my opinion, patently absurd. Cautious tactical asset allocation may have a lure for the bold. Full-blown tactical allocation lures only the fool.
What might dictate moderate shifts in tactical asset allocation? One example: concern that stocks are substantially overvalued relative to bonds. Then, investors with conviction, courage, and discipline might benefit from a bow toward caution. I say "bow", not "capitulation." In an inevitably uncertain world, the reduction should not exceed 15 percentage points in your equity position. If you have 65 percent of your portfolio in equities, retain at least 50 percent; if 50 percent, at least 35 percent, and so on. A little caution may represent simple prudence, and, if you are relatively risk-adverse, may enable you to sleep better, a blessing that is hardly trivial. One doesn't have to have investment experience to recognize the wisdom in this saying, from a remarkably parallel field: "There are old pilots and there are bold pilots, but there are no old bold pilots."
- John C. Bogle, Common Sense on Mutual Funds
Had a winning horse; the other two finished out of the money. Packed up a few bucks in the process. The fourth horse was scratched.
The boys and girls at the Clubhouse believe this tax proposal has no chance especially in the Senate. Large corporations do well however, the individual taxpayer (middle). not so. Changes will have to happen.
Time will tell.
Will Bob appear today?
Gabe asked:
Will Bob appear today?
Gabe, no one knows for sure. However, a well known, "many-times-over-multi-millionaire" when asked the question said this:
https://goo.gl/YGjRfG
JC
.
Jerrod and all....It is almost certain that Bob Brinker will be live today. Remember that Jeffrey Gundlach Tweeted this out?
Jeffrey Gundlach
Verified account
@TruthGundlach Oct 31
I’m on Bob Brinker’s “MoneyTalk” radio program this Sunday. MT debuted Jan 1986 and has helped more investors than anything else I know of.
.
I just responded to Jeffrey Gundlach's Tweet. We'll see if he blocks me like Bob Brinker Jr has done.
Here it is right now:
Honey's Buzz @Honeysbuzz now
Replying to @TruthGundlach
I'll post a summary of Moneytalk today, as always - including a summary of Gundlach's interview. Google Honey's Bob Brinker Beehive Buzz
What I don't understand in Bogle's comment is the 50% to 80%. That's a big range,so what is the magic percentage? He seems to think once the magic percentage is dictated then that's that, never change over 15%. Financial advisors and BB often say 50% if in retirement. I read a Business School analysis of history within real life portfolios. They wanted the least risk ratio. It was 80% as the biggest risk was running out of money in long retirement. Really, it is guess work.
I do think most investors do slide the bar (cheat on their percentages) if worried of recession or indulging in long bull market. Paul Novell's financial blog had a chart of real life investor's return vs buy and hold for SPY. Not good, investors panicked or fell victim to greed. Real returns for the average investor is 2% less that the average. So, we learn not many doing what John B. suggests. Also, retirees have monthly retirement income needs. Most will not stop dipping into savings when the market crash or corrects.
I do know Quant analysis is common practice even in Vanguard. So, they use data and benchmarks to active manage funds such as Wellesley and Wellington. These funds have a scale of equities and income investment much like Jack B is describing. I read the Quant team is working on investments for the international flavors of these two funds.
Investors that fear high priced S&P 500 are going to global emerging markets as per history this sector does better and loses less in these times. Some will lower risk with hedge funds. I did read that Vanguard considered the investment opportunity of international stock to now be fair game for moderating investment risk. They and many others think higher growth in future may be off our shores.
That Paul Novell's financial blog describes one of the simplest TAA systems that operate with Quant data of the simplest form unemployment rate. He back tests the effectiveness of such a simple system and is impress with a bump up in returns as compared to buy and hold. One member on HBBBB's blog was utilizing similar approach that utilized the Dow's average with a formula to trigger decision making. He was a long consumer of this packaged/commercial system that saved his bacon in the Great Recession. Investors are all reviewing housing, labor, interests, to keep a line on economy. This P.N. guy has posted of his experience, back testing, and success of utilizing 6 common benchmarks. This is the simple quant part in which the simple TAA would be to exit equities and go to 10 year treasury or vice a versa. Now, this will cut into the last stages of a bull market returns, but those that take cover enjoy less draw down when the inevitable happens. I do think investors are realigning investments based on economy. So, if this is true, the Quant approach is better as it will take out the emotion side. The side that is always detrimental. The TAA is simple to complex, but again within a predefined path that is tested or proven. These are known and proven methods, but do take effort. I read an investment newsletter from this owner that claimed he could not offer customers this service as he would go bankrupt. You see investors will not sit by patiently for very long while others are raking it in. This, I believe, why even Vanguard will not go here per active management fund.
Personally, I was falling victim to the emotional decision to settle for less returns for the benefit of less volatility. That bonds were safe even though income was close to nil after inflation. Going forward this may prove risky given the long term environment of raising interest rates.
Also, I'm thinking all boats rise in a strong market. Picking the best of the best is not as important as being in the market. The opposite occurs to, but at a much faster rate. Past this basic idea one can do what John B talks of. Changing asset allocation to winning sectors.
Honeybee,
Based on Gundlach's lovely, praising comment (above) it would appear they are simpatico.
That's too bad really. It would be fun to listen to a war of words from two guys with XXXXX-LG egos.
It's naive to think regulation cost are not a factor within stock future pricing. The premise of demanding a direct link or hard data with pricing stocks value is not valid. While I haven't seen a chart like this, your inference of being worthless value is absurd. It would be akin to discounting the positive vs negative rating of economy . The economist analysis of good tax money expenditures on infrastructure during low economic growth helps economy and a big factor in appraising the future price of stock. Same common wisdom on repeal of Dodd Frank and the run up on financial stocks. Also, the current loss of such future.
If you look at extremes it becomes obvious. Fly over a state controlled economy and review the economic stats of such economies vs open market capitalistic economies. Notice the lights out at night as an indicator of poor economy. This is well proven economic theory. Well, you say we have better regs. Well, economist rate regs as tax overhead burden drag just like typical tax load. You say that's the price of clean water and air. O.k. why does China air and water so horrible. You say our politicians are virtuous public servants that would never let crony capitalism influence their benevolent work. Now, were back to naive thinking.
I remember way back in college in a economics class. The first time I was introduced to this study. I found it fascinating and could absolutely understand the factors. I was confused on the boredom and out right aggression of most of the class to the teachings. What's going on here? Over the years the only thing I could come up with is this required teaching was afront to most of the class cherished biases. My guess, these peers never had to make a trade off of spending. They merely held their hand out to authority per demands of fairness. I don't think most of them grew up with being grateful to customers for food on the table per self employment hard work.
The safety and pollution regs we had in industry were a joke. It wasn't a code book to learn of such matters. So, much diversity of problems, that you had to just go with the bottom line of keeping things safe and the basics of such with code. Regs offer no drop in liability or safety other than the rule book will be used against you. Some of this stuff is laughable. We had a vacuum furnaces that require cooling water. The water once it enters into the building is at minimum classified as Industrial Waste if leaving the building. So, we had the full permitting expense, recording, and reporting. Our company emitted thousands of gallons of Industrial Waste that was dumped into the Rocky River. The water never seen open air and merely circulated for a few seconds in pressure coil gaining 2 degrees of heat. The city wanted us not to use the sanitary sewer and it was agreed to dump it to storm sewer. We could have spent a few extra bucks for cooling tower, but it was cheaper this path. The manager was long time friend of this small town and wanted the city to receive extra cash. So many other stories like this and especially the safety regs. Here is some links to read if interested. John Stossel has good ability to communicate the benefits. A couple Forbs articles.
I do hear many a citizen that really do think our country is on track with our regulation industry. They think their safety, health, and wealth is a result of increased regulation. I'm sure one can come up with our growing economy and increased regulations for data. If you Goggle regulation cost it will stream out with a mountain of articles and data.
Just recently, the ethanol industry won a government partition to remove Ethanol blend limits during Houston's hurricane damage and loss of refinery capacity. The thinking was that the fuel was cheaper, cleaner, and had no refinery problems. They were allowed the temporary lifting of regulation. I'm sure the citizens of this area experienced lower fuel prices and cleaner air per lifting of regs. So, what is the greater good that government governs? As compared to simple open markets and good consumer info can achieve? BTW the RFS is a reg that does improve the lot of alternative fuel. Some regs are good. The ones that promote open markets and consumer honest information. In this case a fire block if petrol attempts to drive a merger competitor out of business.
Also, know that the last CIC had thousands of regs immediately on the table upon his tenure. There was a back log of regs waiting for good environment. The torrents of regs have all but dried up. For every new reg two must be removed. Kudlow is long time well respected economist talks of regulation cost to economy and rates it as high as tax reform. BTW IRS is nothing but a regulation house. Everyone knows our conformance costs are extreme. No, government regulation is going to prosper the economy more than free open market capitalism. Reference N Korea.
https://imprimis.hillsdale.edu/the-real-cost-of-regulation/
https://www.forbes.com/sites/williamdunkelberg/2017/04/04/the-insidious-cost-of-regulation/#700fddc55c7b
https://www.forbes.com/sites/robbmandelbaum/2017/01/24/the-83000-question-how-much-do-regulations-really-cost-small-business/#48925a541b25
Post a Comment