retirement investing | Bill DeShurko

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A Productive Use of Time

A book review by Jim Kilgore CFP® and Bill DeShurko

There are thousands of books on the market aimed at individual investors who are attempting to go it alone and invest on their own. Whether that be for retirement or some other financial goal, investing is a challenge… because the market does not always go up!

In Why Bad Things Happen To Good Investments, William Hepburn walks the reader through some of the most important concepts to understand regarding investing and managing risk. He explains why buying a basket of stocks, mutual funds, or ETF’s and holding them forever does not always have the intended result and gives many examples where an active investment strategy can be superior to the buy and hold strategy.

We are in the business of investing and financial planning and we have read hundreds of books on investing over the years. Mr. Hepburn’s writing style is such that anyone can read this book and understand the concepts he is trying to teach. The book truly is written to the amateur investor looking to educate themselves on how to do it wisely. Mr. Hepburn does not use a ton of heavy math and statistics and he is still able to explain things concisely. That said, there is much information in here for the experienced professional and individual alike.

Jim: One of the quotes I really enjoyed from the book was the following “There is an old saying on Wall Street that bulls can make money and bears can make money, but pigs and sheep get slaughtered. The way to protect yourself from these emotional risks is to have systems and the discipline to stick with them.”

I think my favorite part of the book is how Mr. Hepburn explains to the reader over and over how Wall Street says one thing to the individual investor about how to invest, but does something entirely different with their own money. If for no other reason, you need to read this book about how Wall Street does not have your best interest in mind, but rather their own. (Bill: especially if you think you are learning anything useful from watching the “business” news channels all day!)

Chapters 16 and 17 on Hedging and stops are invaluable to helping an individual investor and professionals alike limit the downside in their portfolios and is worth the price of the book by itself.

Bill: I’d also add that I first met Mr. Hepburn at an investment conference back in the 1990’s when you were a pariah in the industry if you recommended anything but buy and holding Morningstar ranked 5 star mutual funds. Well before that strategy was debunked, Will was a leader in the field of active portfolio management in the independent investment advisor arena.

As investment professionals, we highly encourage both do it yourself investors and those working with advisors to read this book. We don’t think you’ll be disappointed. Remember:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Mr. DeShurko is the Managing Member of 401 Advisor, LLC an independent registered investment advisor. Jim Kilgore is an Investment Advisor Representative of 401 Advisor, LLC. They are also registered representatives of Ceros Financial Services, Inc. (Member FINRA/SIPC). Ceros is not affiliated with 401 Advisor. The views expressed are those of Mr. DeShurko and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.

Past performance does not guarantee future results. There is no guarantee that any investment or strategy will generate a profit or prevent a loss.

“Lies – damn lies – and statistics”

Published February 13, 2020 dividends , economy , finance , Financial Planning , Investing , money management , portfolio , retirement investing , Retirement Planning , stocks , Wealth Management 2 Comments
Tags: election

I love statistics. My favorite book is “Money Ball” by Michael Lewis about how Billy Beane turned around the Oakland A’s baseball team with the help of Paul DePodesta. The two combined to rethink how to evaluate talent – removing the “gut feel” of a scout and replacing it with a new look at the performance statistics that really mattered. Since their system came up with different attributes than most other talent evaluators, they were able to acquire good players “on the cheap”. His team did make it to the American League Championship game, but not to the World Series. But it was still quite a turn around.

But to the point, one thing that Money Ball highlighted is that statistics, by themselves don’t suggest a course of action. Statistics need to be interpreted. What is important or relevant is most times open to debate and still subject to human bias. Thus the interpretation that statistics (and I will qualify with misused statics) are nothing more than damned lies!

For the past several years, and especially last year the financial media and talking heads insist on talking down the economy and raising the specter of the imminent recession/market crash. Had an investor listened, they would have missed out on one of the best years ever in terms of the S&P 500’s return. Despite my more paranoid nature, we stayed pretty much invested throughout the year. I attribute this decision to focusing on the statistics that matter to the market and ignoring those that don’t.

One example is debt. And in this case, I am only talking about consumer debt. Analysts spend a lot of time talking about the volume of debt. With debt levels at record highs, a recession is most certainly around the corner. Instead they should be talking about the number of dollars consumers spend on servicing the debt. And only then, in relation to the dollars available to make those payments. Debt does not become an economy wide problem unless increasing numbers of people can’t make their payments. Below is a graph from the St. Louis Federal Reserve that shows the historic amount of household debt payments as a percentage of disposable income (after tax income).

While the percentage is rising, it is currently near an average level of the last 40 years or so and well below pre financial crisis and tech wreck levels.

What this tells me is that the consumer is pretty healthy. The economy is still nearly 70% consumer driven, and the consumer relies on debt. Debt servicing payments have room to grow, especially if incomes continue to rise.

What Does Matter?

The corollary to the debt is too high argument is that, if interest rates increase rapidly debt service costs will rise and the graph above could start looking ugly soon. Yes, and if monkeys start falling from the skies. I grew up in the 1970’s, the years of double-digit inflation, (inflation is what drives interest rates higher). 90% of economic thought at the time revolved around inflation. Inflation was talked about more than debt is today. I was schooled on inflation. I too am paranoid about the prospects for inflation. But guess what? It is just not on the horizon. Remember one phrase – global capacity utilization. There is just no price pressure on anything that can be manufactured overseas. Country of origin doesn’t matter. And the world is full of unemployed people that will work for a lot less than Americans. The Steve Jobs of the business world will continue to pay sustenance level wages to women and children around the world as long as a sustenance level wage is the only alternative to no wage.

Where we do see inflation is in services. Tradesmen are in high demand and so far, you can’t fly in a plumber from China to remodel the bathroom and then fly them home for less than the cost of the local plumber! But such services are still a small enough part of the overall economy that they haven’t had a major impact on the overall national numbers.

What are we Watching?

In addition to the graph above we have a systematic approach to looking at the economy. A non-emotional statistics driven flowchart of steps taken to interpret data. We look at things that history and economics say really matter. Things like money supply – the biggie! Not the yield curve that everyone else is obsessed with, but the forward yield curve and for the market it’s always all about future earnings.

As we have transitioned into a new calendar year remember too that 2020 is all but in the books for the stock market. While the election process is likely to cause more than normal volatility, the market’s focus has turned to 2021 and that crystal ball is still pretty hazy.

The best advice we offer, is the same advice: Make a plan and stick to it, that way you are not emotionally reacting to the story, and the bad statistics, of the day.

For a plan for your portfolio we are always here to help.

Bill DeShurko, President and Portfolio Manager

James Kilgore, CFP

Ofc: 937.434.1790 Bill@401Advisor.com or Jim@401Advisor.com

Investopedia Q & A

Published April 12, 2017 dividends , economy , finance , Investing , money management , portfolio , retirement investing , starting to invest , stocks Closed

WILLIAM DESHURKO’S ANSWERS

How can a nontraditional college student gain more income to provide for a brighter future?

Well you could try and win the lottery, search www.ancestory.com for an unknown rich relative, or marry rich. Rule those out and your best alternative is to get that degree… Read More

Are qualified dividend paying stocks a reliable source of passive income for retirement?

Yes…Yes…and Yes!!! Not only are taxes lower on dividends then an IRA withdraw, but think of it this way; if you take regular distributions from a mutual fund within your IRA,… Read More

Does rolling over 401(k) funds to an IRA for charitable contributions satisfy my RMDs?

Regardless of the purpose, you can always roll over a 401(k) plan investment into a rollover IRA without paying taxes. Since the money is not taxed at this point and remains… Read More

How would rolling over my 401(k) to a Traditional IRA affect my contribution limit for 2017?

Rolling over a 401(k) plan account will have no effect on the amount you can otherwise contribute to a regular or a Roth IRA. Congratulations, you have a nice start on… Read More

Should I hold on to a temporarily suspended stock?

Well, if its been suspended, you don’t have much choice! Once the stock begins trading again, you will need to make that decision. My suggestion is to do as much… Read More

What should we do with two mature IRA CDs?

I see some form of this question all the time, and it is confusing. An IRA is not an investment, it is a tax designation that applies to virtually any… Read More

I received a lump sum pension when I retired. Can I roll this lump sum into a 401K or IRA?

You can roll it into an IRA and defer taxes until you make withdrawals. If you already received the money, you have 60 days from the receipt to deposit it… Read More

Are penny stock mutual funds a solid aggressive investment?

You assume that an “aggressive” mutual fund will make you more money than a less aggressive mutual fund. Why? Aggressive means more risk. Risk means there is an increasing possibility… Read More

Dividend Investing

Published April 15, 2016 economy , finance , Investing , money management , portfolio , retirement investing , starting to invest , stocks , Uncategorized 1 Comment
Tags: corporate earnings, dividends, ETF, High yielders, investing, low beta, portfolio, retirement

401 Advisor, LLC specializes in building client portfolios using dividend paying stocks due to their long term history of providing superior returns over non dividend payers. I recently contributed to an article posted by U S News on their web site. The article highlights warning signs that a stock may be cutting their dividend in the future.

Do you have Genworth Long Term Care Insurance?

Published November 6, 2014 finance , retirement investing Closed

Just a quick warning to anyone that may have purchased a Genworth Long Term Care product. Genworth’s stock dropped over 30% on Thursday after they reported earnings. Apparently the restated their financials after recalculating the reserves required for their outstanding Long Term Care Insurance contracts. Simply put, they admitted that they grossly underestimated how long clients would live and thus how long they would utilize their long term care insurance.

What does this mean to an insured? Likely premium increases. LTC products guarantee premiums won’t go up on an individual basis, but they can increase premiums across all policies of the same class. Based on what I’ve read, expect rates to go up very significantly.

For more information give us a call and we can review your coverage.

Published September 18, 2014 dividends , finance , Investing , portfolio , retirement investing Closed

While the markets have shown some recent volatility, the one thing we can count on is our dividends and dividend increases. One of our popular holdings, Microsoft (MSFT) announced a dividend increase yesterday. Their quarterly payment has been upped from $.28 to $.31 giving investors an 11% raise in their income. When is the last time you received an 11% raise?

For more information on how to have a life long stream of rising income schedule a free portfolio analysis today!

bill@401advisor.com

“Growth” portfolios

Published April 11, 2014 finance , money management , portfolio , retirement investing Closed

As of noon today our “Growth” portfolios will be 80% in cash.

I anticipated that the market would be a little volatile as we head into earnings season, but selling sentiment seems to have been unusually strong over the past week.
Hopefully markets will rebound with earnings announcements, but if sell off is related more to China and Europe, than this could be more than just a 10% “correction.”

Last Minute Gifting Advice

Published December 16, 2013 Investing , money management , retirement investing Closed
Tags: gifting, medicaid

I hate to put a damper on the biggest gift giving season of the year (the time between Hanukah and Christmas), but one warning could save major headaches down the road.

Many times seniors like to take advantage of the current $14,000 gift giving exclusion. This allows anyone, at anytime, to give up to $14,000 a year to as many individuals as they desire, without paying income tax or affecting their estate tax exclusion. The confusion and potential problem is that such gifts are not allowed under Medicaid rules, and could potentially limit when a nursing home patient would become eligible for Medicaid assistance.

A little background. Nursing homes today can easily run over $80,000 per year depending on level of medical care required. Few seniors have the income necessary to fully pay this kind of cost, especially if a stay at home spouse is involved. Assets are typically sold off to pay the difference. In the circumstances of an extended stay, many seniors will eventually rely on Medicaid to supplement the cost of care. However, Medicaid has strict financial requirements. Meaning you must spend down all but a very small amount of your assets before Medicaid will assist with the costs. Medicaid also considers any gifts given over the last five years as if they were still part of your current assets, and so will not start paying until additional costs equal to those gifts are incurred.

For example, Mrs. Smith gives $10,000 a year to each of four children every year for the past five years. She enters a skilled care nursing home facility costing $80,000 per year. Her Social Security and pension equal $20,000 a year, so she must liquidate $60,000 of savings each year to cover the cost. In three years she has exhausted her original $180,000 nest egg. Normally Medicaid would now step in and cover her costs over her $20,000 per year income. However, since she was still gifting the $10,000 to her children for two of the prior five years, Medicaid will not start until she incurs additional nursing home costs equal to the amount of those gifts, or $80,000. The children will be expected to pick up her nursing home tab for two years before Medicaid will begin payments.

While this is a simplification, formulas and state rules will come into play, the general point is valid. So while gifts are always nice, if you are receiving financial gifts from elderly parents or grandparents, you may want to put that gift into the bank, instead refurbishing the kitchen.

On a Positive Note
I can’t end without a more positive planning note. If you are planning on making gifts to charity, consider giving shares of appreciated stock directly. This way you avoid paying capital gains taxes, still receive the full charitable deduction, and a charity can cash in the securities without being taxed on the gain. Most charities have brokerage accounts established just for such gifts. If not we can make arrangements for them.

For more information on proper gifting techniques feel free to call and schedule an appointment for a free consultation.

Don’t Rule Out Bonds for Income

Published August 9, 2013 dividends , Investing , money management , portfolio , retirement investing 1 Comment
Tags: bonds, investing, portfolio, retirement

I recently posted an column at: MarketWatch.com titled: “Why Individual Bonds Remain Very Attractive” While investors are bailing from bond mutual funds – a wise move, individual bonds do offer protections against rising interest rates not found in bond mutual funds.

My overall prediction is that rates cannot go up dramatically. With every 1% increase in interest rates, the added amount the government must pay to just pay the added interest cost on the Federal debt, increases by about $180 billion. For perspective, the “sequestration”, the mandated cuts put into place that get the blame for everything bad in the economy, only cut spending by $42 billion (and prevented another $43 billion of spending increases). Simply put, the government and the Federal Reserve have a lot at stake to keep interest rates relatively low for a very long time. That said, a ½% increase across the board seems likely – but only if the economy continues in a positive direction. I think this is a big “if”.

The short version of the MarketWatch article is that many investors think that a bond’s value is fixed, and that they are stuck holding a bond to maturity. The reality is that a bond’s value will naturally increase in value through the first half of its life. This allows a bond investor to sell their bonds at a profit after a short holding period. If rates don’t increase. But even if rates rise, a bond will likely return to its par value several years before its actual maturity date.

For example I was recently quoted an Ohio municipal 10 year bond, Aa2 rated and insured, a ten year maturity, and a 3.655% yield to maturity. That is a federal and state tax free interest rate. If interest rates do go up ½%, the face value of the bond will drop below purchase price for the first 3 ½ years or so. But by year 5 the bond should be back to what an investor would pay for it today. So in effect, your 10 year bond has come a 5 year bond – paying 3.655% tax free. That is a pretty good deal.

If you own bonds and want to know when an optimum time would be to sell them, contact my office and we will run the analysis for you. If you need more income, or just want to diversify but don’t know where to go, give us a call and we can explain what bonds can do for you, even at a time when everyone is cashing in on their bond funds.

Web Talk Radio Interview

Published October 17, 2012 retirement investing Closed
Tags: investing, retirement, web talk radio

I was recently interviewed by Robert Margetic of Web Talk Radio for a piece on “The New Retirement – Its Your Attitude” The segment discusses new thinking that retirees must adapt to for a successful financial retirement.

Bill DeShurko