-compounding interest – invest 10-20% of income annually.
-you find bargains at the point of maximum pessimism. When everyone is running one way, that’s the time to run the other.
-when the market is going down, that’s the time to buy, as “night is not forever” financial winter is a season, and it’s followed by spring.
-mutual funds – broker fees and hidden fees (commissions, market impacts costs, spread costs, transaction costs, etc) fuck you royally over a lifetime of investing. They make money regardless if you do, they have interest mostly in investing your money into funds that reap the most benefit for them, not you.
-they promote time weighted returns/average returns, which are bs. Dollar weighted returns/actual returns are the truth.
96% of actively managed mutual funds fail to beat the market over any sustained period of time.
-mutual fund companies produce churn and burn mutual funds, and only advertise the good ones to try to recruit you as a client.
Beat the market essentially means going up against stock indexes which are baskets/lists of stocks (S&P 500 (standard and poors top 500 companies in America, as an example, or Vanguard 500).
Top guys like Ray Dalio and Warren Buffet recommend only focusing on stock indexes for minimal risk and maximum upside.
Hedge fund – private fund for high net worth investors. They bet for the market and make money when It goes up, and bet against the market and make money when It goes down.
From 1993 to 2013 s&p returned averages of 9.28%, while the average mutual fund investor made 2.54%.
An index fund mimics or matches the market, It doesn’t try to beat It as a whole.
Asset allocation – diversifying your investments to weather the storm regardless if it’s up or down.
***low cost index funds – a portfolio of these type of funds is the best approach for a percentage of your investments. Fuck mutual funds.
401k – a retirement account option, similar to an IRA. This is where you can have your mutual funds managed within if you choose so. Fees are excessive. Average person will lose 155k to 401k fees over a lifetime based on annual income of 30k/yr and saving 5% income per year.
PLUS – since taxes are deferred to a later date (this is for IRAs too), it’s unknown how much the tax rate will be in the future. Which means you could end up paying a shit ton when you decide to return and begin withdrawing from your retirement account.
Your total annual fees and associated costs should be 1.25% or less on average. Investment advisor fees can be tax deductible.
-find and hire an independent registered investment advisor (ria) a legal fiduciary. Their fees could be tax deductible based on tax bracket, fees will be less and they have a legal right to have your best interests in mind.
Portfoliocheckup.com – tool to analyze your current accounts/holdings and help give guidance on how to properly set up your asset allocation.
Creative planning – $50k minimum on assets to invest to use their services. Recommended though. (Portfoliocheckup.com)
Key criteria for finding your own fiduciary
-registered with state or sec as a registered investment advisor
-ensure person/firm is NOT affiliated with a broker dealer (ask for this in writing)
-does not offer proprietary funds (products/funds creating by the firm, they try to sell you on adding them to your portfolio), you want investment advice, not them selling you investments as well.
-advisor is compensated on a percentage of your assets under management, NOT for buying mutual funds. Shouldn’t pay more than 1.25% in annual advisory fees for comprehensive financial planning and less than 1% for only portfolio management.
-NO 12b-1 fees, shareholder service fees, consulting fees or other pay to play fees being paid as compensation.
-advisor does NOT receive compensation for trading stocks or bonds.
-ensure your money is held with a reputable third party custodian such as Schwab td ameritrade or fidelity, not with advisor directly.
-ensure firm has educated and credentialed advisors on board.
Roth IRA – pay taxes up front, which is better because then you never have to pay fees again (especially once they go up as they always do). But you can only
put a maximum of $5,500 annually, Roth 401k allows $17,500 annually. (Don’t think you can even do a Roth IRA if you make over a certain amount).
BUT – If you make over $122k/yr, there’s no income limitations on a Roth 401k (although it can be maxed out, not sure what’s the max), which means you can do $17.5k/yr, pay the taxes today and be chillin
Tony is partnered with America’s Best 401k – look into this company
Cash balance plans – need to look into this
Profit sharing plan – need to look into this
-variable annuities – no go. Pretty much just another form of investing in mutual funds, tax deferred, with excess fees.
Structured notes – a loan to a bank where if the market goes down, you receive 100% of your money back. If the market goes up you get a piece of the upside (plus your money back).
Important to use a trusted bank (canadians banks are best).
Market linked CDs – similar to notes but backed by the FDIC. You get a small guaranteed return if market goes up (plus piece of upside). If market goes down you get back your investment plus the small guaranteed return + you had fdic insurance the entire time. Money is typically only tied up 1-2 years where a structured note can be 5-7.
^^^ Do this through a fiduciary advisor to limit fees.
Fixed indexed Annuities (FIA) – 100% principal protection guaranteed by insurance company (essential to pick a trustworthy one), same as notes/market linked cds, participate in upside with no downside. Gains are tax deferred or if own within a Roth IRA you don’t pay taxes on returns. Some fia’s offer certain monthly income payments for every dollar you deposit, when you decide to turn it on/trigger It. <—— need to look into more.
Annuity without the annuity – something about paying insurance 1% annual fee for monitoring your portfolio for protection. In the event you run out of money during retirement they will guarantee you an income stream for life.
Immediate annuities (income insurance) – for those at retirement age or beyond, seeking guaranteed set monthly income in exchange for a lump sum payment up front provided by an insurance company.
Mortality credits – mentioned but unsure what It is or means.
You can select an option where if you die prematurely, the insurance company will refund your heirs the same amount you put in (but then you’d get much less amount on your monthly income payments).
Or you can get an inexpensive term life insurance policy.
Deferred annuities – you give a lump sum or money over a period of years and instead of immediate income, your returns are reinvested in a tax deferred environment, until you choose to flip the switch on.
Three types of deferred annuities (need to pick a top insurance provider. Especially one a part of the insurance guaranty association, which essentially guarantees you up to a certain amount of the company goes under).
1 – deferred income annuity – aka longevity insurance – lump sum deposit today, guaranteed income that kick on at a date much later in life.
2 – fixed indexed annuity – rate of return is tied to how the stock market does, you get a piece of the upside of the market (typically capped on the amount of gains you get a piece of, sometimes it’s uncapped and they just take a small spread) , with no downside and no possibility of loss. The insurance company takes a part of your principal and invests It by buying “options” on the stock market index. If It goes up, they keep majority of It and give you a piece. If It goes down the options expire and you don’t lose your principal. If you get an FIA within a Roth IRA there’s no tax on gains or lifetime income once you begin to access It.
3 – hybrid annuity – aka contingent annuity – you keep your capital and invest It in a tax efficient portfolio of low cost index funds, if you run out of money in retirement the insurance company steps in and pays you guaranteed income for rest of your life. Check out the ARIA Retire One product.
In tax deferred environments, you get charged a 10% fee if you make a withdrawal prior to age 59 and a half.
Avoid variable annuities.
Www.lifetimeincome.com – informational resource on the different annuity product options.
When you buy a house let’s say 30 year fixed rate mortgage at 6%, fully 80% of your mortgage payments will go towards interest.
If you buy a home for $1m, you end up paying double, so $2m due to interest payments. In order to stop this insanity, you can prepay your next months principal and cut your 30 yr mortgage to 15 yr by not having to pay all the interest. The next time you write a monthly mortgage check, write a second check for the principal only portion of next months payment.
When selling outside of a tax deferred account…. Long term capital gains tax – holding investment for a minimum of a year and one day to get a significantly lower tax fee (around 20%) versus selling quick and having to pay larger short term capital gains
When investing make sure you can at least defer taxes (401k/ira/annuity/defined benefit plan) so that you compound tax free and only pay taxes when you sell, if you cannot invest in a Roth.
-Look into real estate investment trusts (reits) for Non accredited investors. Owning a Basket of properties around the country. Can be purchased for as little as $25 a share and offers quarterly dividend payments. <——- the 75 year old age segment will grow by 84% between 2010 and 2030, massive demand and not enough supply. Senior housing facilities is a good long term investment opportunity.
-money market funds
Diversifying your portfolio amongst different asset classes and across different markets.
– dollar cost averaging (diversifying across time). It takes out the emotions from investing, whether it’s greed or fear. You pretty much invest on a set schedule, with the same amount of money invested each time. This way the fluctuations and volatility of the market work to increase your gains. (Ex – If a specific stock you own goes down, you end up buying more of It at a lower price).
Lump sum investing can be more lucrative but also more risky.
-rebalancing – To be successful you need to rebalance your portfolio at regular intervals.
If your risk/growth bucket goes up to 75% of all your assets when It needs to be at 60%, you must rebalance by selling some of your assets doing well, and buying underperforming safer assets when their prices are lower for your security bucket, to put the proportions back in balance.
Beware of taxes when rebalancing if you’re in a tax deferred environment and/or if you’ve owned the assets for less than a year.
Tax loss harvesting – using losses to maximize net gains, lowering your taxes (not sure on this one).
Ray Dalio – how the economic machine works – www.economicprinciples.org
Ray says if you have 50/50 of your portfolio broken down into stocks and bonds, you really are risking 95% of your portfolio because stocks are way more volatile than bonds (three times more risky/volatile)
To have a balanced portfolio, you must not only divide your money equally, but divide the risk of each investment equally as well.
You must divide up your money based on how much risk/reward their is, not just in equal amounts of dollars in each type of investment.
All weather approach – there are four possible types of seasons in the financial world
1 – higher than expected inflation (rising prices) (commodities/gold, inflation linked bonds (tips))
2 – lower than expected inflation (or deflation) (treasury bonds, stocks)
3 – higher than expected economic growth (stocks, corporate bonds, commodities/gold)
4 – lower than expected economic growth (treasury bonds, inflation linked bonds (tips))
Since you don’t know when one season will approach, the best strategy is to have 25% of your risk (equally) in each season. This way you’re covered/protected at all times.
Rays sample portfolio
– 30% in low cost index funds (like s&p 500 or vanguard)
-long term government bonds
-15% in intermediate term (7-10 year treasuries)
-40% in long term (10-25 year treasuries)
This large percentage of your portfolio counters the volatility of the stocks.
You always want a piece of your portfolio to do well with accelerated inflation. Although they have high volatility, they counteract for when rapid inflation hurts both stocks and bonds.
Must rebalance at least annually (can increase tax efficiency if done properly). If one segment does well, you must sell a portion and reallocate back to the original allocation.
Private placement life insurance (ppli) – aka the rich mans roth but without income or deposit limitations – a type of life insurance policy that is shielded from income tax on gains, as well as the payout upon death. Depending on how it’s set up, you can also withdraw or borrow funds tax free.
Borrowing is legally deemed a loan, which is not taxable. You can then repay the loan at a future date of your choosing or allow the life insurance proceeds to pay off the loan when you pass away.
Must be an accredited investor to access PPLI (typical minimum annual deposits of $250k/year at minimum of four years, Net worth of at least $1m not including the value of your primary residence, or income of at least $200k/year for last two years or $300k/year combined with spouse).
For those unaccredited – there’s TIAA-CREF. Www.tiaa-cref.org/public
Need to set up a living revocable trust versus a will. This way you avoid probate if you pass away, which is a costly and lengthy procedure of allowing the courts to sort through your assets and make everything public record.
It also can protect you while alive, unlike a will. If something happens you can have an incapacity clause that allows someone to step in and handle your bills and other affairs.
Look into Pour over will – even though It requires probate.
Free living trust template at www.getyourshittogether.org or legal zoom.
-warren buffet – keep emotion out of It. Invest in undervalued companies for the long term.
Paul Tudor Jones – 5 to 1. 200 day average. This way you can be wrong 4 times and still make money.