Brian Fricke - America's Worry Free Retirement Expert

Social Security Do-Over Eliminated

admin — Wed, 22 Dec 2010 18:25:51 +0000

EXPOSED The Huge Hidden Fees of Variable Annuities

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How are you affected when the Koreans start shooting at each other?

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If You Have Money In A Mutual Fund You Could Be In For A Nasty Tax Hit

admin — Tue, 23 Nov 2010 18:51:18 +0000

Are You Guilty of This Common Money Mistake?

admin — Tue, 16 Nov 2010 17:37:07 +0000

Want an Income You Can Outlive in Retirement?

export — Sat, 13 Nov 2010 12:10:54 +0000

Good morning everybody! Welcome to another edition of Coffee Talk. Today’s topic, does it make sense to take some of your money and purchase an annuity with a lifetime income guarantee. You may have read some reports or heard some reports where the government is actually studying and looking at whether or not it makes sense to give 401(k) plans and their participants the option of moving some of their money into a guaranteed income annuity. That’s what we’re going to talk about today for just a little bit. Now there is a lot of talk about annuities there’s all kinds of different annuities out there so let’s make sure we’re talking about the same thing here today. What the government is talking about is what is called an immediate annuity. When you look up to the word annuity in the dictionary it’s Latin for “nuit”, which is for income. So as the name implies immediate annuity immediate income. All that means is you transfer or give up a lump sum of money in return for the annuity company guaranteeing you an income stream for a period of time or even lifetime no matter how long you live. There are other kind of annuities out their deferred annuities, fixed annuities, equity index annuities, variable annuities, those are all in a general sense accumulation or saving annuities that’s not what we’re talking about here today. What we’re talking about here today are income annuities where you would transfer a lump sum of money over to an annuity company, and then they would give you a get an income stream guaranteed for a period of time. Sometimes lifetime.

So who wouldn’t want income that you can’t out live? That has some merits, however there are some pitfalls. With a lifetime annuity it’s kinda like a lifetime pension, think of it in that regard you’ve given up access to a lump sum of money in return for monthly payments, in this case that you cannot out live no matter how long you live. Whether that life span is short or long, so there is the double-edged sword. If you transfer over a lump sum of money to get an annuity payment and then you’re killed in an accident a month or two months later, guess what? There’s nothing left to transfer over to your heirs unless you select a little bit different variation of the income annuity option. So that’s the reason a lot of folks shy away from so-called income annuities. The concern is they meet with any unexpected premature demise. They or their family are not going to get back even what they paid in to purchase the annuity income stream. So long those lines, there are some income annuities where you can purchase a guaranteed income stream plus lifetime, usually that would be life with 10 year certain. And all that means is the incoming payment will continue for life no matter how long you live or 10 years, whichever is longer so if you meet with an untimely demise, if you haven’t collected 10 years of payments, your family members or your beneficiaries will. The drawback to that of course is as you can imagine, if you think about it, your monthly annuity check is not going to be as big compared to a life only without any kind of a guaranteed time period of payments. And that just make sense. So the bigger monthly income stream you want, the better option is purely a life only annuity, but if you want to make sure the payments are received for a period of time even if you pass away prematurely, then a life with a certain period of time guaranteed and 10 years is the most common option.

Now the other obstacle or drawback with an income annuity is inflation. Inflation hasn’t been that high recently, but I think everybody kinda expects inflation to start picking up at sometime certainly over the next let’s say 10 years and beyond. Well what looked liked attractive annuity payments or for that matter pension payments, what looks attractive today 5-10 years from now isn’t going to be as attractive because usually with the annuity payments, you’re locked into your monthly income payment for the life of the annuity. So that could be a drawback. So for that reason, a couple of words of caution. If you’re thinking about taking some of your lump sum savings and investments to purchase a monthly annuity payment or a monthly income stream, what you want to do is not use all of your money or the majority of your money because over time you’re going to lose purchasing power thanks to inflation. The other thing to bear in mind and this is really why we’re not recommending to our clients today that it make sense to purchase an income annuity with a portion of your money, and that’s simply a look at where we’re at in interest-rate cycle. Interest rates are at all-time historical lows. And while the interest rate isn’t directly attributable to your income annuity, the annuity carrier has to factor in the current interest rate environment to determine what your monthly benefit or what your monthly annuity payment would be. And all that means really is the higher the interest rate environment, the higher your monthly payment and when you buy an income annuity, typically you’re locking yourself into that monthly payment. So if we’re looking an interest-rate environment of 1%- 2% today, your annuity payment is going to be much lower compared to buying an annuity income stream in an interest-rate environment where interest rates are let’s say six or 7%. So our advice or our suggestion would be if the idea of using some of your money for income guaranteed for life is appealing may be deferred that decision, defer that investment, while we are in a low point in the interest-rate cycle and revisit as a potential opportunity when interest rates have gone back up or are rising so you get to buy yourself a bigger monthly income benefit. Remember not to use all of your money. We would recommend probably no more than 15% -20% of your money be allocated to an income annuity and again we would do that not today in today’s low interest rate environment, but consider doing it once interest rates are starting to move back up, and maybe even dollar cost average if you willing into an income annuity so maybe take 5% of your money when rates start to move up and then over time add another 5%, another 5%, so you may end up purchasing for different income annuities from four different carriers, the only way to diversify because by the way your income payment is guaranteed by the annuity company, which is typically an insurance company. The payments guaranteed by the annuity by the insurance company so the safety guarantee of those payments is as strong as or weak as the financial solvency or the financial footing of the issuing company. Depending on the amount of money involved, it might make sense to purchase not one but several different income annuities from multiple companies and again stage it over a period of time so you can dollar cost average or if you’re familiar with the laddered CDs, it’s the same thing concept in that regard.

That’s about it for today’s edition of Coffee Talk. Hopefully this gave you some food for thought. Challenging your thinking. I encourage you to join us again next week for another edition of coffee talk and in the meantime, if you have any questions or concerns about your financial situation, we’re happy give to give you some friendly advice at no cost or obligation all you have to do is contact us here the office. The best way to do that is to call the 800 number or send us an e-mail. The 800 number is 1-800-393-1017. The e-mail address is info@fmcretire.com and we also appreciate any topics or questions that you’d like us to address on a future edition of coffee talk. Send us those ideas and comments as well too. Until next week have a great week and we’ll see you next week on another edition of coffee talk. Bye now.

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Want An Income You Can’t Outlive In Retirement?

admin — Tue, 09 Nov 2010 23:33:41 +0000

Mistakes People Make With Stock Options And How To Avoid Them

admin — Tue, 02 Nov 2010 19:58:35 +0000

Finding A Good Mutual Fund Or Stock

export — Mon, 01 Nov 2010 18:11:05 +0000

Well good morning everybody. It is Brian Terry. My voice might sound a little bit off. I got a little sinus thing going for the last couple of days but that’s what’s medicine is for. Saw on email this week from Brian talking about the fact that he said he is a financial advisor, and he meant, “we” because this happens to all of us. When folks find out that we’re in the financial advisor world inevitably we get the question, “What do you know about this stock? What do you know about this company? What do you know about this mutual fund? What do you think of it?” And sometimes, if it’s a company that I follow for clients or it’s a company that I’m real familiar with, I’ll answer the question directly. “Hey, here’s what I think about the company. Here’s the fundamentals. Here’s what’s going on in their current situation. And it’s either good, bad, and I’ll definitely throw in what I think technically of it. So on a supply and demand basis it’s either going up because of economics or it’s going down. So, that’s probably the exception because I don’t track that many companies. We do have clients that bring portfolios to us that have what we call legacy stocks. Their either stocks or mutual funds that they’ve had for a long time before they started working with us and we have had them keep those in their accounts. And the only reason we’ve done that is because we’ve reviewed them, found them to be good companies, but not just good companies, good from a supply and demand basis. All that means is probably more likely than not the performance of the company is outpacing the index. It’s outpacing what other things we would have them invest in. So we’ve kept it for the time being. But always with an exit strategy.

Yeah, I think just one thing before we get too far into that. One of the things that people have a tendency to do is when they come to us and they ask us that question, “What do you think about XYZ mutual fund or XYZ stock, one of the things I like to do is first of all ask them why they are asking the question. Is it for some reason that their either thinking about investing in it or maybe they already have the stock or the mutual fund or maybe, and here’s the one that I like to tell everybody to watch out for, maybe it’s because they heard about it in the press in some form or fashion whether it was on CNBC or they read a magazine article about that particular stock and that becomes foremost on their mind because it’s a current buzzword for the day, for the week. So one of the things that you really have to watch out for is simply by the time the press gets a hold of it, and Brian correct me if I’m wrong or if you disagree, by the time the press gets a hold of it, it’s old news. Okay, so you have to be

Totally agree

So you have to be careful when you’re thinking about making investment decisions based on what you’re seeing in the press. So that’s probably one of the biggest warning signs I like to bring to people’s attention when they ask us those kind of questions.
< BT >
That’s right. Just to add on that, when somebody says, “I read about it in Forbes.”
“Okay, what issue?”
“Oh last month’s” or “Three weeks ago” or what have you. The writer probably knew about that about 6 weeks before that. So that’s what, 9 weeks ago that that news hit the street? And fifteen minutes is all the time it takes for any kind of news to price into a company, a stock, whatever it is. And that’s standard rule of thumb. Fifteen minutes is all it takes. And then you brought that up if they heard about it on the news. If it’s their favorite stock of the day. But what about if they hold it? What do you tell people as far as any caveats about hanging on to stocks forever and ever?

I mean there’s a lot of things that go in to deciding whether or not to hold on to a stock. First and foremost and the reason why we use technical analysis ourselves (supply and demand) is because just because you have a stock and just because it is a great company doesn’t necessarily mean that’s going to translate into price appreciation for your particular stock. So that’s one of the things that we look at when somebody actually already owns a stock. And then we measure that against the things that we hold and our own client’s portfolios and accounts and see whether or not it makes sense to continue holding it or if there’s better opportunity elsewhere. But we do that by plugging it into a system. And we have our own system and our own way of doing things. And for folks who aren’t clients that ask us those questions, that’s another topic that I’d jump on right away, is just to let them know, Hey! You know regardless of how I answer this question for you, this is based on the way I view things and the philosophy that Financial Management Concepts uses. So you want to make sure that you have a system in place. You hear us say it dozens of times. You know, Warren Buffett has his method. We have ours and there’s a lot of different methods out there and it’s not to say that any one of them is wrong it’s just that when you have a system, you should stick to it.

Right. That’s a great point. I mean that’s probably the biggest thing that I say to folks is if you have a company whether you’re getting into it or not, or you have it already, have a system. Successful investors have a system. They have rules that they follow and that they don’t deviate from, like Tony said about Warren Buffett. In the 1990’s he did not get into the Internet companies. People thought he was nuts. We’ve said this before. And what happened? The Internet bubble and all that kind of that stuff. And Warren’s back on top well ahead of where he was way back in the 1990’s where he was not making money on the Internet. But successful investors have a system. So when I ask folks about their stock, “When do you know when to get out?” A lot of times its deer in the headlights, “I don’t know! I’m just going to keep it. It’s going to keep growing isn’t it?” So for some people, that’s their system. It’s buy and hold or buy and hope. But generally they call it buy and hold. And they stick to it and they like the company. They keep them forever and that’s okay for some folks. Sometimes, like 2008? Sometimes that’s not the most productive way to invest your money. Why? I can tell you anecdotally how many people have we talked to? Tons. That lost thirty, forty, fifty, sixty percent in 2008 through the buy and hold way of doing things. Not to say that generally speaking over time that’s not going to work. I mean how many people have you talked to said, “Gees, I’ve had these forever. I’m still up. I’m still doing well. I’m almost back to where I was from 2008.” So buy and hold doesn’t destroy you forever. It only hurts you if you have a small timeframe for spending that money. If you’ve got a long long time frame, years and years, then you can afford to do something like that. But most people don’t have a really really long time frame especially if you’re in retirement. If you’re in a retirement, your time frame to you is going to seem short. So to protect yourself, what do you do?
You set rules. Number one, I always tell people, and this is something that Investors’ Business Daily has always said, always years and years, nine percent loss. So when you buy a company or you got a company just use the IBD rule. Nine percent loss, get out! It’s just a stopgap to say, “I made the wrong choice.” Whatever it is. Maybe it’s still a good company just that the economics of supply and demand, the demand isn’t there for that company right now. The other thing is take a profit. You know if the company’s up 30, 50, 70, 100% why not take some of it off the table? Right. I mean why are you in the investment. It’s not to own the company, it’s really to make money. So if you want to make money, take profits off the table from time to time. And set that level, that percentage. If it’s 30, if it’s 50, if it’s 100, you want it to double before you get out. You know, you want to hold the company seven years and get ten percent a year before you get out of it, fine. Whatever that level is, set it, live by it, invest by it. And don’t deviate from it. That’s your system. That’s the best way to do anything with investments is remove the emotion out of your investing. We’ve kind of’ joked with folks about being married to their stocks. And I can tell you countless number of folks that have had Dell, and Microsoft, and Pfizer, and IBM for years and years. And rode it up, rode it down, rode it up, rode it down, watched it go flat-line for years. I mean, General Electric, for years. I mean, not that they’re bad companies, but what happened to the growth? It stopped. I mean it either went backwards or it stopped. So at that point in time, does it matter if that investment got your portfolio, got your account from here to here. If it stopped here, or went backwards, because of it, why do you want to hold it? And it’s all because it’s an emotional attachment to that. You bought it because you liked it. You loved it. It did well for you. Rah, rah! You guys are tight. That’s silly. Who cares, it’s a stock, it’s a company. Move on to something else. Find something different. So having rules, setting goals for your investments is the best way to handle that. Per me. So what about mutual funds? I mean we were going talk a little bit of difference about how we do things. So instead of investing in companies, lot’s of folks we lead folks down the road of we use exchange-traded funds. Exchange traded notes and there’s some differences there. Did you want to mention that?

Yeah, yeah. As far as investing per our clients. I tell this to people who aren’t clients all the time. If they ask about a specific company for a stock and another first response that I come up with, “Well we prefer not to invest in individual stocks just simply because there’s a diversification issue there. Then the topic comes up about mutual funds. “Well what about mutual funds?” Well, we feel that mutual funds have their place but over (I don’t know how long they’ve been around) the last few years the exchange rate of funds have come to the forefront as a cost effective way of being able to invest in a basket of stocks. So it’s a basket just like a mutual fund is, it’s a basket of stocks but it actually trades like a stock. So it provides us with some flexibility to do things during the day because we all know that in the information age and the activity of the flash crash of 2:45 from not too long ago, if you guys remember that one, you know it provides some flexibility if you need to take action during the day. So we prefer to use exchange traded funds for the equity piece of the account whenever possible and sometimes it does make sense to use mutual funds. Kind of depends on what you are trying to accomplish. The other thing that we look at, and it’s a factor when we are trying to figure out what investment’s going to be good is cost. How much does that investment cost? Mutual funds are notorious for having large numbers of different kinds of costs? There’s 12b-1 fees, there’s expense ratios, there’s loads, whether their front end, backend or, what do you call it, recurring. Then there’s annual fees. Then there’s short-term redemption fees, and so on and so forth. So when you’re dealing with mutual funds that can have an impact on your decision making depending on what your own individual situation is. So those are all things that go into our decision making processes and it’s not just a technical analysis because there may be two things that technically will look pretty much identical but if we can find one that has a lower cost, we’re going to look to use the lower cost alternative. Because that goes straight to the bottom line. So that’s something that we try to do for our clients and folks as individuals should, I think, want to do the same, it’s no different than shopping for a car. If you see two cars that are identical and one has a lower price, what are you going to do?

Or, one you could premium in and one you could put regular gas in.

We’ve had that discussion before. Okay, it kinda’ looks like we’re getting a little bit long in the call. You want to keep going or …
< BT >
Yeah, there was only one other thing I wanted to mention. From time to time, like I said, when folks ask us, “Hey what do you think of this?” We’ll offer them, “Hey, let me do an account review for you.” Let me take a look at it, I’ll give you my feedback. And lots of times what we’ll do is we’ll take a look at all the different holdings that they have. Put those into our system. Analyze everything and let them know. “Hey, you know what? You’ve got some good companies here but you should sell this one, this one, and this one. And you should keep these.” And not from any other standpoint than supply and demand. Like we said earlier, GE, Dell, IBM, Microsoft; big companies, great companies, cornerstone companies, but there’s times when you don’t want to own those companies. So, we’ll take a look at folks and their accounts and we’ll say here’s the things that we expect to do well and here are the things we expect to do less than ideal. Not that they may not grow. Certainly we don’t claim to have the crystal ball method. That’s not what we do. All we do is look at supply and demand and figure out where the demand is highest, where it’s lower and we try to avoid low demands and invest in places where there’s high demand.
So, our offer for folks watching this right now, listening to the call. If you have an account and you’d like some feedback on from investment professionals, let us know. Give us a call at 800-393-1017. Shoot us an email at info@fmcretire.com. Fax us the statement: 407-647-7675 and let us take a look at it for you and give you feedback. Quite honestly, we are more than happy to do that. Because we know most investors have a bad rap. They have the, oh they watch the news, they look short term, they do their research, they’re doing like their Morningstar pick the best funds so on and so on. Investors have a bad rap. And what Morningstar did not too long ago in a research study, they found that 80% of the total assets in active equity funds are held in funds that have beaten the market in the last 15 years. So what that means is investors actually do research. They look at where the market is, they look at things like supply and demand and they try and make good decision. They’re not just throwing darts at a board. So, if you don’t have a system. If you feel like you’re throwing darts at a dartboard, give us a call. Let us help you out. We’re more than happy to do that. And if it makes sense for us to work together, let me know that too. And that’s not always the case. So that’s it for today. It’s about 15 minutes. And we want to thank you for joining us again on another Tuesday morning. And hope you have a great day! Take care everybody. Bye now.

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Finding A Good Mutual Fund Or Stock

admin — Tue, 26 Oct 2010 19:58:04 +0000