Welcome back to Protect Your Retirement! Many people have pensions and today, we will be discussing what we think you should do with your pension. Whether you decide to take a lifelong pension or a lump sum, we will give you details you may need to know. Later in the show, Mike and Brian Decker will also be talking about healthcare supplements and how they may affect you.
MIKE: Good morning everyone, happy Sunday, this is Mike Decker and Brian Decker from Decker Talk Radio, and Brian Decker from Decker Retirement Planning, who is a retirement planner, a fiduciary, and we’re just so glad to have him on the show here. We’ve got a great lineup here, we’re going to be talking about pensions, whether you should be taking a lifelong pension, or if it makes more sense to do a lump sum. We’re going to be talking about healthcare supplements and how they may affect you.
MIKE: We’re also going to be talking about what it means to be a fiduciary and much more, so stay tuned for the full hour of commercial-free financial information. This will be jam-packed today. So let’s first get started, Brian, the big question is, let’s say I’m 55 years old, I work at Boeing, and I am going to retire right now. And Boeing’s going to give me the option for a pension or for a lump sum. As a fiduciary, and that’s what you are, what is the conversation you have with your clients when they are trying to make this important decision?
BRIAN: Okay, the most important part of that decision is to use a calculator. So, for example, there’s three reasons why the person that is receiving… So here’s the option. I’m 65 years old, I’ve worked for Boeing for 40 years, and I have a choice of taking, I’m just going to make this up, let’s say that the they’re offering 250,000 for life, or 200,000 lump sum.
BRIAN: Well, the actuaries will say, well Brian, I think you’re going to live 20 years more, 20 into 250,000 is 12,500, yeah, Brian you get 12,500 for the rest of your life, and let me see, 12,500 divided by 250,000… well Brian that’s a 5 percent return. That is fantastic in this low interest rate environment.
BRIAN: I just want to be clear about what has actually just happened there. Brian is now getting 12,500 for life, 5 percent, but that’s 5 percent of my money. That’s that’s taking my pension and taking 16 years to give me my own money back.
BRIAN: And they’re hoping I die soon so they don’t have to pay me what’s left. So, I want to just, we want to make sure at Decker Talk Radio that your eyes are wide open to this option. So let’s compare the option of a lifetime benefit option, income stream, versus a lump sum. There’s three mathematical calculations that are in favor of the lump sum over the lifetime income stream.
BRIAN: The first is rate of return. If you get a 2 percent rate of return on your… or even a 3 percent, let’s use a 3 percent rate of return on your money, over the rest of your life, and to compare apples and apples, let’s say that you don’t spend it, let’s say that it just accumulates so that we can compare the numbers.
BRIAN: You can live to be 100, 105, 110, and the lines never cross because we have a 16-year head start. It takes 16 years for a company to pay you the lump sum that you have day one, which we did by taking the 200,000 lump sum, divided by 12,500, that’s 16 years. So we have a 16-year head start, with a 3 percent return, which is easily doable over the long term.
BRIAN: Now, now you’ve got a situation where the math favors the lump sum option. So that’s number one. Number two is something we call the estate part of this equation. Let’s say Decker Talk Radio listeners, that we have couple A, John and Jane.
BRIAN: John and Jane, couple A, are going to take the lifetime income and they split it in their survivability, so that if John dies, Jane gets her his part of the benefit, so they’re smart, they’ve got that lifetime income covered over two lives. Couple number two, I’ll just make up Mike and Alex, those two, Michael and Alexis I should say, to be crystal clear in our politically correct time.
BRIAN: Michael and Alexis, they decide to take the lump sum. So John and Jane, couple one, and Michael and Alexis, couple two, go on a sky-diving event, and sadly, tragically, the plane goes down with all four of them. How much of the pension, the lifetime pension, does John and Jane’s children get of the 250,000 dollars of lifetime income that was to be paid out to John and Jane on retirement?
BRIAN: Zero. The answer is zero. After John and Jane both died, tragically, that pension is kept by the company and is no longer paid out to the children. There is estate risk to a lifetime income stream that does not exist on a lump sum payout. Michael and Alexis took the lump sum, got the 200,000 dollars, they died, now their children receive the payout of that 200,000, it stays in their estate, it was paid into their estate, and it passes to their children.
BRIAN: So, option number two is the estate risk favors a lump sum over a lifetime income stream. Option number three.
MIKE: Now Bri-oh, go ahead, I… then I’ve got a question when you’re done with option number three.
BRIAN: Okay. The third thing has to do with company risk, and Pan-Am is the poster child of pension company risk. If you’ve got a pension with Pan-Am Airlines, that’s an old airline that’s gone broke, and that company does go broke, now guess what? Your pension is either gone, or the PBIC, Pension Benefit Guaranteed Insurance Com… PBGIC.
BRIAN: They come in and they save the day and they, you don’t get your full pension, you get 40 cents on the dollar. So, all three, we are fiduciaries to our clients, which is very, very important, we should, Mike, we need to talk about that too, ’cause a lot of bankers and brokers these days are saying that they’re fiduciaries when they’re not. But those three items of concern need to be reviewed with all people who are thinking about the choice of taking a lump sum versus a lifetime income payout.
BRIAN: Again, it’s just math, we use our calculator, it’s not opinion, we want to make sure that you make this very important decision eyes wide open. Mike, before we go on, I know you’ve got a question, I want to circle back and hit Medicare supplemental topics.
MIKE: Yeah, we’ll go to healthcare, but I want to be the Devil’s Advocate here for pension income. We are fiduciaries and we’re talking very mathematically here, about what’s the best thing for, to pass on to your kid or whoever your beneficiaries are, but is there any sort of emotional benefit for someone that just wants to take the pension? They just want to have that income stream, they don’t care as much about the beneficiaries.
MIKE: Brian, is that something you see once in a while, where someone just says I just got to have this income stream? And that’s it. Is that something you do see?
BRIAN: Okay, so we as fiduciaries to our clients, have… when we’ve heard people say, usually it’s a single widowed, um, female, she will say I don’t care, I just want the peace of mind that’s coming in during my lifetime. Rate of return doesn’t matter, it stresses her out to think of investing the money, she may not even have any beneficiaries.
BRIAN: So in certain situations we have recommended, given the feedback from the client, that they go with the emotional choice of just these these payments are going to be there each month.
MIKE: Well that’s very interesting. We’re fiduciaries, we want to do what’s in the best interest, but at the beginning of this part of our show, you did say, use a calculator. When you come in, and we’re going to send, we’ll extend an offer here, just a moment. When you come in, we have a very special, what I’m going to call calculator, but it’s a mathematical proprietary software that we have that can run and compare your pension versus lump sum and how it would affect and benefit your retirement.
MIKE: Now Brian you had mentioned healthcare, that’s another very important part of retirement planning. Let’s dive right into that. Healthcare supplements in retirement planning. As a fiduciary, and we’ll talk more about fiduciary in a moment, but what, how do you have that conversation with your clients about healthcare supplements in retirement planning?
BRIAN: Years ago, we used to hire someone, we would hire someone whose job it was just to be the Medicare supplemental guru. And then we didn’t have enough demand for that person, so then we hired outside for this expert, and then we found the best situation for us as far as information, access, high-level information, and that is to use YouTube.
BRIAN: YouTube, if you type in, in your computer, YouTube dot com, pull up the website, and then under the search bar, the title up top, you type in Medicare supplemental choices. Forget about what’s on the right side, after you hit search, look at the top two most highly viewed choices. You get incredible information. Our clients have loved it ‘cause they can stop it, they can replay it, they can review it carefully, they can listen to it again.
BRIAN: And that information has been very valuable to our clients. If you’re 65 to… or 64 to 67, somewhere in there, and you want to know if you made the right choice, or you want to make the right choice for your Medicare supplemental, go to YouTube and type in Medicare supplemental choices, and you can check to make sure that you’ve made the right choice if you’re over 65. Or if you’re 64, 65, it can help you make the right choice.
BRIAN: Mike at this point, go ahead.
MIKE: Wonderful. [LAUGH] Oh I was just going to say, YouTube’s such a wonderful tool to get that education. But at this point, Brian, what were you going to say?
BRIAN: I want to talk about the election, it’s in two days.
MIKE: All right, let’s talk about the election, two days, a lot can happen, a lot on the line. And a lot of news being covered on every front it seems like.
BRIAN: Okay, so you want to hope for the best, but plan for the worst, as far as your stock portfolio goes, and it’ll be very interesting to see, with the stock market hating uncertainty, what is actually going to happen. So the markets apparently have priced in a certain president’s win, and if that doesn’t happen and there’s a surprise, there will be some market volatility.
BRIAN: So we want to make sure that you, if the markets go up from here, and by the way, markets have a seasonality to them, and that is from November first to May first, that six-month period, 10,000 dollars invested in the S&P 500, every year since 1950. So every year you buy the S&P 500 Index November first and you sell it May first.
BRIAN: Your 10,000 actually Mike we just put this number in the newsletter, I can’t remember what it is exactly, but it is huge. It is very high. I can’t remember if it’s like, six figures or seven figures. But it is, it’s massive how much that 10,000 grows.
BRIAN: If you invest 10,000 in the S&P from 1950 to present from May first to November first, that six-month period, your 10,000 is around 6,500 dollars. It has not only not grown, it’s gone negative. The six-month period from May first to November first, has the dearth of earnings announcements, it’s when summer vacations happen, people are less engaged I guess.
BRIAN: But, the six-month period, for a bunch of reasons, from November first to May first is a seasonality plus, and we just entered that six-month period. So if the markets go up, Decker Talk Radio listeners, I hope you’re positioned to take advantage of it. Our clients are. But if the markets go down, hope for the best, plan for the worst, if the markets go down, I hope that you’re protected.
BRIAN: Every seven years, the markets get creamed. Absolutely creamed. So we are due, cause 2008, markets got creamed, and the markets bottomed March of ’09, seven years plus ’09 is 2016. So in the next 18 months we expect that the markets will take a major hit. Are you ready? What do you have to protect you when the markets go down?
BRIAN: Do you have your bonds and stocks, and cash? Those are, and real estate, those are your typical four parts to your portfolio. Let’s take real estate out, because unless you have rental real estate, you have your residence, we don’t include that in your plan. So let’s take your residence out. How much cash should you have on hand? We typically have about four months of cash as emergency cash.
BRIAN: So, if you have more than that, probably don’t trust the markets right now. And by the way, when I speak of the stock markets getting creamed every seven years, let’s give you the dates. Um, ’08, before that, seven years before that, was 2001. Twin towers went down in ’01. It was the middle of a three-year bear market, where there was greater than 50 percent drop.
BRIAN: Seven years before that was 1994, Iraq had invaded Kuwait, oil prices spiked, recession had started, the economy had weakened. And the markets struggled. Seven years before that was 1987. Black Monday, October 19th. 30 percent drop in one day, 550 Dow points in one day. Seven years before that, 1980, sky high interest rates, two-year recession, 40-plus percent drop in the markets over those two years.
BRIAN: Seven years before that was ’73, ’74, bear market and economic recession, 40-plus percent drop in the markets. Seven years before that was ’66, ’67, same thing. Two-year bear market, over 40 percent drop, recession for the United States. So this keeps going. Every seven years, it seems like the markets get nailed pretty hard.
BRIAN: So we want to make sure that you can hope for the best, but you have a plan for the worst. Mike, we talked about how in the past, typically one bubble will take a market down pretty hard. Right now we have four. There was one bubble that took the markets in half in 2000, ’01 and ’02, that was the tech bubble.
BRIAN: When the tech bubble burst, markets got creamed, over a 50 percent drop. There was one bubble in 2008, that cost the markets over 50 percent and almost brought the world financial markets to their knees. And that was the mortgage bond bubble. We have four bubbles right now. Here we are, we have four bubbles at the same time, because of artificially low interest rates.
BRIAN: Number one, we have the stock market bubble. When you have all other things being equal, the lower the rates, the higher the PE expansion, the higher the valuation of the stock market. Right now, the price earnings ratio of the S&P is 25, it’s only been higher, 1929, and in 1999 before the tech bubble burst.
BRIAN: So we have a bubble in the stock market. Number two with low interest rates, artificially low interest rates, we have a bubble in real estate. Commercial and residential real estate have a mathematical formula called the Affordability Index. The Affordability Index is at record high gaps in all the major metropolitan areas around the country. So you have mathematically, a bubble in real estate because of artificially low interest rates.
BRIAN: Held artificially low through central banks and the Federal Reserve’s in our country and in the G7 nations. Okay number three, we have a bond market bubble. Bond… when interest rates are low, bond prices are high. And eventually that will reverse. So far this year, I think it was May of this year, we had the ten-year treasury at around 1.2, we’re now 1.8. We’ll see if we continue this climb.
BRIAN: But not only is the United States seeing interest rates start to go up, but the other countries, the other G7 countries around the world are also seeing interest rates trending a little bit higher. But when that bond market bubble bursts, well I’ll get to that in a second.
BRIAN: The fourth and final bubble has to do with debt. Country debt. The G7 nations around the world have all taken on more than 100 percent of their GDP in debt. We’ve never seen this before, we’re in uncharted territory. So when we hope for the best, we do, we hope for the best, but we plan for the worst. If we… There’s basically two pins that can burst all four of those bubbles.
BRIAN: One is higher interest rates. The higher interest rates go, the bigger hit to stock market, bond market, and the interest paid by the countries on their debt will occupy a greater percentage of the spending of the taxable income for those countries. And those four bubbles will burst if interest rates do trend higher.
BRIAN: And number two is geo-political. If we have a geo-political event like a 9/11, that will cause, or exacerbate a recession. So those are the four bubbles that we have right now. Um, I want to make sure that you have protection on the downside. Typically, a diversified portfolio has some cash and real estate like we’ve about it, now let’s talk about bonds and stocks.
BRIAN: Mike, we have time for this?
MIKE: Yeah, we’ve got time for bonds and stocks.
BRIAN: Okay, bonds. Probably one of the worst investments that you can make right now is when interest rates are on the ten-year treasury, even at 1.8 percent, to lock in a long-term or intermediate-term, 5, 10-year, 20-year, seedy government, corporate utility, municipal bond… is probably not the greatest.
BRIAN: You’re not earning much money, and when interest rates go up, your bond price goes down. In my opinion, the worst investment in a typical banker or broker asset allocation plan portfolio, is a bond fund. Because you’re not getting paid much right now, number one, and number two, you will lose money when interest rates go up. You don’t make more money when interest rates go up, you lose principal on bond funds when interest rates go up.
BRIAN: So when interest rates are so close to zero, that would be like investing in the stock market where you had a cap on how high your portfolio would go, but no cap on the downside, so right now we’re at 18.3 on the Dow, let’s say that your cap was 18.5, 200 points of upside, one percent, and we have all kinds of downside.
BRIAN: Nobody in their right mind would invest with those parameters, and yet, we have bond funds where bankers and brokers recommend that you put your safe money… it’s not safe! When interest rates do eventually go up, dramatically, as we expect that they will, eventually, people will lose many, people will lose a lot of money.
BRIAN: In what banker and brokers are telling you is your safe money. We want to jump up and down, wave our hands on the radio, and let you know that bond funds are not safe. And bonds right now are not such a great investment. We are fiduciaries to our clients and we recommend for your safe money, principal guaranteed accounts that do the following, and Mike, when I talk about what this is, we should have people come in and actually see this for themselves.
BRIAN: I’m a visual, and so radio would frustrate me if I tried to describe this, I would rather show it to people when they come in. So, imagine that you got…
MIKE: Let’s make an offer.
BRIAN: Yeah.
MIKE: Yeah, let’s an offer after you go through this.
BRIAN: Okay. So I’ll describe this, we’ll make the offer, and we’ll move on. When it comes to principal guaranteed accounts, we ladder the portfolio so we have a five-year account, that pays five years of income, we have a 10-year account that pays for your six through then, we have a 20-years account that grows for 10 and pays for years 11 through 20, et cetera.
BRIAN: It’s called a laddered principal guaranteed account. The instrument that we use is mathematically, objectively, factually producing the highest returns available now today. In fact, it has averaged 6.6 percent for the last 16 and a half years. Since January 1, of 2000.
BRIAN: What is it? It’s banks and insurance companies both offer it. If banks offer it it’s called an equity linked CD. If insurance companies offer it, it’s called an equity indexed account. How does it work? Say you invest 100,000, January 1 of 2000, you make money, you make around 60 percent of what the S&P makes in a given year, but if the S&P goes down you lose nothing.
BRIAN: Let me say that again. If the S&P goes up, you make around 60 percent of the S&P gain, but if the markets go down, you lose nothing. So in 2000, ’01 and ’02, you didn’t make a dime, but you didn’t lose anything either for that three-year period. Then the markets doubled from ’03 to ’07, every year you capture around 60 percent of the S&P gain, and then the market…
BRIAN: And by the way, every year, you have a new basis, a new floor from which you cannot lose money. So this is very important that you know that after you’ve accumulated a very nice gain up to 2008, markets get creamed, you don’t lose a dime. You kept all of those earnings. When the markets go down, you don’t lose a dime.
BRIAN: So then, from ’09 to present when the markets more than double, you, every year are locking in around 60 percent of those gains. These have been around 25 years, they average around, like I say, 6.6 to be exact, we ran the numbers. From January 1 of 2000, there’s no higher earning principal guarantee to count out there, and why haven’t you heard of it um, through the banks and brokers?
BRIAN: Well, because they’re not fiduciaries. We… they’re not getting paid a security commission on equity link CDs or equity indexed accounts. We want to make sure our clients mathematically, objectively, factually are optimizing every part of their portfolio, and factually, mathematically, this is where we’re getting the highest returns and we ladder these in principal guaranteed accounts so that when the markets crash every seven or eight years, our clients are not affected.
BRIAN: Not their lifestyle, not their travel plans. We used these in 2008 when the markets got creamed, and our clients that did the planning didn’t have to make any changes to their lifestyle. When sadly, tragically, people all around them had to sell their home, move in with the kids, go back to work, all kinds of things, they had to go to Plan B, because Plan A failed.
BRIAN: So we want to make sure that you know that on the bond side, any of the bankers and brokers telling you that your safe money is in bond funds is a mathematical joke. It’s demonstrably false. And then anyone telling you to lock in a low rate at a hundred-year low interest rates is also not looking out for you.
MIKE: All right Brian, so the next point I want to cover here is stocks. How are we going to be able to protect our stocks if or when the markets go down?
BRIAN: Well, let’s look at the different ways to protect client capital. This is kind of interesting to me, anyhow. A lot of people out there, at Decker Talk Radio, you think you’re protected because you’re diversified. I did my own study on this, in 2008, let’s say that you had an equal diversification of large cap, mid cap, small cap, growth, value, international, and emerging market sectors to see how, compared to the S&P 500, that would have lowered your risk.
BRIAN: And we measure risk by losing money. How would that have helped you? In 2008, the S&P was down 37 percent. If you had equal exposure to large cap, mid cap, small cap growth, value, international, and emerging market ETFs, exchange traded funds, you would have lost exactly the same. 37 percent.
BRIAN: In other words, diversification helps wonderfully uh, in most all markets except for the panic sell offs that happen every seven or eight years. When there’s a panic, waterfall decline, Decker Talk Radio listeners, everything, it’s Katy bar the door, everything’s coming down.
BRIAN: So, diversification in risk and no risk investments help you then, but diversification among equity investments, at least in 2008, didn’t offer you much help. So there’s one. Number two, and by the way we’re not saying to not diversify. I’m not saying that. I’m saying that in powerful down trends, I just condemn the buy and hold strategy.
BRIAN: Bankers and brokers, I guess let’s call this option number two, is just ride it out, ride it out, Decker Talk Radio listeners, because we’re long term investors and we want to be tax efficient, and no one can time the markets… if you do that, if you listen to that, that’s fine if you’re in your 20s, 30s, and 40s.
BRIAN: But if you ride it out and take those hits every seven or eight years, which are 30-plus percent hits, and you take four years to get your own money back, I would say you can’t do that when you’re over 50 years old. Because that will, if you’re not, you’re retired, that will delay your retirement, definitely, mathematically, and if you are retired, now your portfolio with… the stock exposure has just taken a massive hit.
BRIAN: Because you have a lot more money, investable funds, at 50-plus than you did at 20, 30, and 40 years old. Mathematically it makes absolutely no sense until you remember that’s how the bankers and brokers get paid. They get paid by keeping your money at risk. If you call a banker and broker and tell them you don’t like the market, you’d like to move it to cash or CDs, they don’t get paid a rap fee on your CDs.
BRIAN: Or on your money market account, typically. So, sadly, this is part of the business that I was trained in, I’m embarrassed on, but you need to know that’s why they keep all of your money at risk in an asset allocation pie chart which we call an accumulation strategy, where you have that pie chart of stocks, bonds, mutual funds, cash, it’s all diversified.
BRIAN: But it’s all at risk. Okay, the third option is, I played golf with a guy, just yesterday in fact, who said he’s got the perfect strategy. He is very sophisticated, he does option strategies. He has straddles and spreads, I told him, hey if you’re sophisticated, you know that this works in a flat market, because if the market trends up, your positions that you’re… you’ve sold the risk, your covered calls, you will give those stocks away, and you give away all the upside.
BRIAN: Those stocks just keep going up. And you’ve limited your gains by having a covered call strategy. And if the markets go down, that’s even worse. Yeah, you made a call premium, but you keep all the downside. And the broker says, yeah we’ll just keep selling call options, or I hope this isn’t true, you have also sold put options, so that means that you own stocks that are just getting creamed.
BRIAN: And I’ve seen a lot of people get really hurt with naked spreads in the options market. So I hope that you know that covered calls and spreads work beautifully in the flat market cycle we’ve had for the last two years. They work spectacularly.
BRIAN: But when we start a trend up or down, you have compromised your gains on those. Another option is, another way to protect capital is to simply have a stop loss. So you tell yourself, hey I’m smart, Microsoft goes from 50 down to 45, a 10 percent stop loss, then by golly… by the way, 60, so let’s say 60 down to 40, or 54, ten percent stop loss.
BRIAN: Then you’re out of it. But over the last 10 or 15 years, darn it, it keeps happening. The stock comes down 10 percent, turns and goes and makes a new high, now it’s at 65, I’ve buying it back, and I’m chasing it, and it moves 10 percent all the time. So what happens after that is you say you have a mental stop instead of an actual stop.
BRIAN: So mentally, you reassess everything. Well here’s what happens once every seven or eight years, and check this out if this isn’t you. Because people have fear and greed as investors in the stock market, you tell yourself that after you take a 10 percent hit, you get a little queasy, and you tell yourself, well once it gets back to where it was then I’m going to lighten up.
BRIAN: But guess what, every seven or eight years, the markets get creamed, and so, this year, they don’t go back. Now you’re down not just 10 percent, now you’re down 15 percent. And you get a little bounce. Now you’re down 10, and now you’re down 20 percent, so what do you say now that you have a stomachache, you can’t stand to listen to the news.
BRIAN: Here’s what we do. Not you do, here’s what we do. Actually no, we don’t do this. Here’s what most people do. Most people put lipstick on the pig and justify their non-action and their situation where they’ve lost 20 percent of a heck of a lot of money, they say well I’m a long term investor. I know that the markets can’t be times, and I’m a long term investor, and so I’m going to ride this out.
BRIAN: Now the 20 percent loss goes to 30 percent, and 30 percent goes to 40 percent, and 40 percent goes to 50 percent just like it did in March of ’03 and October of ’08. Now you’re down 50 percent from the market peak, and you are sick to your stomach, you’re not sleeping at night, and you can’t afford these losses, and finally you panic and you just sell.
BRIAN: And that of course, is the bottom of the market. I hope Decker Talk Radio Listeners, I hope that you don’t do any of these strategies and think that you have protection. I hope that you don’t think diversification is going to protect you in the risk markets. I hope you don’t think that having stop losses is going to protect you. I hope that you don’t think that being a long term investor is going to help you, or having option spreads or trading flat markets.
BRIAN: What we believe is the best way as fiduciaries to our clients to protect your stock portfolio in a down market is to have a two-sided portfolio. The stock market’s a two-sided market, it goes up and it goes down. Why not have a two-sided strategy in a two-sided market? What do we mean by a two-sided strategy?
BRIAN: A two-sided strategy is designed to make money in up markets and down markets. These are called trend following models, and these are mathematical, computer-driven models that have been around, these strategies have been around for over 30 years. Jake O’Shaughnessy wrote a book called What Works On Wall Street, the biggest study every done, was done by Jake O’Shaughnessy.
BRIAN: He spends 300 pages in his book talking about fundamental analysis, and why his mutual funds are so good, hoping I guess that no one reads Appendix A on page 312. In Appendix A, he, since 1950 to 1994, did the biggest study ever done, asking the question what strategies produce the highest returns, mathematically?
BRIAN: And all ten of them are two-sided, long short, momentum trend following models. All of them. By the way, because we’re fiduciaries, that’s what we do. We want, when it comes to your risk money, we just care about two things. Number one, when the markets go up, we try to keep up with the S&P, which by the way, is no small task.
BRIAN: 85 percent of money managers and mutual funds don’t keep up with the S&P. And then when the markets go down, we want to have downside protection, we want to have strategies that protect you when the markets go down. From January 1 of 2000, if you put 100,000 dollars in the S&P, dividends reinvested, your 100,000 goes to about 200,000 today.
BRIAN: Average annual return is around 4 and a half percent. 100,000 with the models that we’re using currently, growed over 900,000, net of fees, and the average annual return is 16 and a half percent. These are models that combined, the six of them, made money in 2000, ’01, ’02, and in 2008.
BRIAN: Now, at this point, and by the way, when the markets doubled between ’03 and ’07, so did they, when the markets doubled between ’09 and present, so did these, but they didn’t take the big hits in 2000, ’01, and ’02, collectively. These models were actually able to make money collectively in 2000, ’01, ’02, and ’08. So why… a typical question, and by the way, this is Decker Talk Radio.
BRIAN: Brian Decker and Mike Decker, we are talking about two-sided strategies that we hope that you have in place, because the markets crash every seven or eight years and we’re due, and we hope you have downside protection. What we mean by that is these are computer models that when the markets trend higher, you’re able to make money, and when the markets trend lower, you’re also able to protect your principal and actually sometimes even make money.
BRIAN: So with these models, back to the book, What Works On Wall Street, on Appendix A, he lists the top 10. All of the top 10 are two-sided, uh, long short, trend following, computer algorithms. So we simply used the best that we can find for our clients.
BRIAN: Why wouldn’t the bankers and brokers use these for their clients? There’s four reasons why not everybody’s doing this. ‘Cause at this point, when we talk about these models being out there and available for 30 years, the obvious question is, well, then why isn’t your banker or broker using this for you? Number one, two of these six models are no load mutual funds.
BRIAN: No load means they don’t pay a broker any commissions. So why would a broker tell you about funds that he doesn’t get paid on. That’s not going to happen. Number two, bankers and brokers put their careers at risk when they tell you about, if they were to tell you about these types of models, because now they’ve told you about models that tell you what to buy, when to buy, and when to sell.
BRIAN: Now you don’t need him or her. Number three is by far the biggest reason why not everybody’s doing this. Number three is the point that banks and brokers require, keyword require, their bank-their bankers and brokers to use the asset allocation pie chart. Why is that? Because it keeps them from being sued.
BRIAN: If you think about how you created your own asset allocation pie chart, you were given a risk questionnaire that when you filled it out, it produced a commensurate asset allocation plan, and then it also spit out an investment policy statement that you signed and dated.
BRIAN: Now you can’t sue them because you created that, and it acts as a legal barrier of protection to the banks and brokers. And I guess there’s a fourth reason the big mutual fund companies like Vanguard and Fidelity, their business model is to create hundreds of mutual funds that gather billions in assets. They’re not going to 10 or 12 that you actually need in their model.
BRIAN: So for all four reasons, you won’t find what we do using two-sided trend following um, uh, algorithms, and also a distribution plan, you won’t find that outside of a fiduciary’s office.
MIKE: So Brian, for the last ten minutes here, I want to…
BRIAN: Hey I want to cover, I want to cover a couple other things Mike, real quick. Is that all right?
MIKE: Sounds good, yeah.
BRIAN: Okay, Warren Buffett had, he has so many great quotes. He says that, it’s when the tide goes out that you can see who’s swimming naked. What he means by that is, everyone has a plan, but when the markets drop, let’s find out how good your plan is. And I know this is terrible, but he also says don’t confuse brilliance with an up market.
BRIAN: And what he means by that is a lot of people we talk to say hey my guy’s good, I’ve been with him for six years. Well, have you been with him through a down market? No. Do you know, have you seen his performance in a down market? No. The very first thing we look at when we’re reviewing money managers and planners, is we review to make sure that there is downside protection.
BRIAN: We want to see how well these managers have done, in 2008, and then if they’ve been around that long, we look back at 2000, ’01, and ’02. That’s the first thing we look at, and then the second thing we look at is keeping up with the S&P in the good years. Mike, the other thing I wanted to cover is to talk about newsletters for a second. Decker Talk Radio Listeners, if you have newsletters out there, I’m going to pull the curtain back on how these newsletters work.
BRIAN: Let’s say that we ran our own newsletter, we don’t, but let’s say that we did. First of all, there’s no oversight on these, and so we can say whatever starting date we want, we can quote whatever returns we want. And here’s what we’re going to do, every month in the newsletter that we charge 300 dollars a year for, we are going to throw out 15 or 20 different recommendations, and by the way, in the next newsletter, we’re going to say, if you had followed our advice on these two that worked, by the way we don’t say anything about the 13 or 18 that we didn’t mention.
BRIAN: If you would have followed our advice with these two, then you would have made all this money. That’s how newsletters work. We’ve had a lot of people come in and say that they got hurt by this newsletter or that newsletter, and they had seven figures before, 15, 20 years ago, but because of this newsletter, they’re now down to six figures, or whatever.
BRIAN: So we wanted to warn you about newsletters, want to make sure that you have a strategy that actually you’ve seen how it’s done in a down market. Okay Mike, I interrupted you, sorry about that.
MIKE: No, that’s fine, that’s a very important point. And we’ve got a few more things. I wanted to just segue into Brian saying the election’s coming down, two things, there’s four market bubbles that are on the horizon, lot of things are going on right now, a lot of people are holding their breath for the next week or so. Do you have any last just quick comments for the next we’ll say, six minutes, to end this segment on things to look for, things not to look for, just to wrap up today’s show?
BRIAN: Yes, I hope that you have a plan for the downside for the next 18 months. And the plan for the downside isn’t to go to cash, because this is brand new news, the Federal Reserve Bank announced that that stocks are now an option that they can buy. So imagine with low interest rates, even with no corporate earnings, which by the way for six quarters in a row, earnings for the S&P has gone down, not up, you put a Federal Reserve Bank that’s buying billions and billions of equities, and you’ve got another leg to this bull market.
BRIAN: So, I hope that you’ve got your bases covered, where we hope for the best, where the markets actually go up for here, from here, but hope that you plan for the worst so that if it doesn’t, that you’re protected. I hope Decker Talk Radio listeners, I hope that you take us up on the offer to come in, I will be totally transparent, I’ll show you how these models work.
BRIAN: How they participate when the markets go up and how they protect you when the markets go down. I hope that you have a plan. You should have some equity money, some cash, some emergency money set to the side, you should have some safe money, you should have some real estate, obviously, if you’re living in your home…
BRIAN: By the way, we don’t put your real estate in your plan, we hold that outside your plan. And then we hope that you have some way to automatically know that if the markets go up, you do well, but if the markets go down, you’re protected. I guess I should have led with this, Mike, the number one thing that I hope Decker Talk Radio listeners do is deal with a fiduciary.
BRIAN: Because if you’re not, you’re dealing with a salesperson that can sell you all kinds of nonsense like variable annuities, non-traded reits that are huge commission products that are great for the broker or the banker, not so great for you.
MIKE: Brian I was thinking the same thing. And of all the jargon that you might hear in the financial world, if there’s one word of the financial world you know, and that… it should be the fiduciary. Because this is a word that could make a huge difference for how you’re doing your retirement planning. A fiduciary is someone, Brian correct me if I’m wrong, but it’s someone who has to put their client’s best interests before their own.
MIKE: And they’re held to a higher standard than any banker or broker that’s out there. And we’ve done this before, but we ought to do it again, there are three ways that you can tell if someone is a fiduciary or not. Because just saying that they’re a fiduciary, that doesn’t work. It’s kind of like Michael Scott from The Office, when he yelled bankruptcy.
BRIAN: Well that didn’t work, you can’t just yell it, there are certain things that have to happen. For a fiduciary, there are certain things that will let you be a qualified fiduciary instead of just claiming to be one when you’re not really one. Brian, can we do those three points here in the next two minutes?
BRIAN: Yeah. I’ll go through this very quickly. If your banker or broker tells you a fiduciary, you need to write down that there’s three requirements for them to be a fiduciary. Number one they have to be an independent company. If they’re working for a bank or a brokerage firm, they are not independent. We are independent, Decker Retirement Planning out of Kirkland, we are an independent company, we can work with any company or product.
BRIAN: No one tells us what we can and can’t do. Number one, independent company. Number two, they have to have a Series 65 license. That license specifically forbids us from receiving commissions. We are a fee-based manager only, when it comes to securities, we cannot receive securities commissions.
BRIAN: Number three, the structure of the company is an RIA, registered investment advisory company. As an RIA, we uh, are and act as a fiduciary. A fiduciary is someone who’s required by state law to be held at a higher moral, ethical standard, are required to put our clients’ best interests before our company’s best interest.
MIKE: I love it. Nice and simple. So, KVI listeners, Decker Talk listeners on our podcast, thank you so much for tuning in with us this week, a quick couple reminders for this show, if you want to listen to it again, you can always go on iTunes, Google Play, or our website, www.DeckerRetirementPlanning.com to catch this show or previously recorded shows.
MIKE: We have written a number of articles on our website as well that you are more than welcome to look through and enjoy. With the last few comments, I guess, we just want to say that we are dedicated to you on this show to provide you the best content possible, so you can have the information you need to make the best decisions so you can protect your retirement.
MIKE: This is Mike Decker and Brian Decker, thank you so much everyone, have a wonderful week.
