MIKE: Good morning, and thank you for listening to Decker Talk Radio’s Protect Your Retirement, a radio program brought to you by Decker Retirement Planning. This week we’re addressing the problems in the banker broker model in retirement. The comments on Decker Talk Radio are of the opinion of Brian Decker and Mike Decker.
MIKE: Good day, everyone. This is Mike Decker and Brian Decker on another edition of Decker Talk Radio’s Protect Your Retirement. You’re listening to Decker Talk Radio on KVI570 AM in the Greater Seattle area and KNRS 105.9 FM radio in the Greater Salt Lake area. We’ve got Brian Decker, our special guest today, a licensed fiduciary from Decker Retirement Planning. You’ve got offices in Kirkland, Washington, Seattle, Washington, and Salt Lake City. Today we’ve got a special program specifically dedicated to the problems with the banker broker model in retirements.
MIKE: Now Brian, just to get started, bankers and brokers, they do just fine when you’re accumulating assets, but there’s a transition in how you invest your money in retirement. And we’re going to talk about that today much more, right, Brian?
BRIAN: Right. So this is going to be a common sense discussion of, why am I at risk? What’s wrong with the banker broker model? I’ve grown up with the banker broker model and feel very comfortable.
BRIAN: Okay.
MIKE: All right, let’s dive right in.
BRIAN: All right. So first we’ll start off with the number one reason that your banker broker model puts you at risk in retirement is your banker and broker are not fiduciaries. A fiduciary is someone who is required by state law to put their client’s best interests before their company’s best interests. There’s a three-fold test to find out if your banker or broker is a fiduciary.
BRIAN: Number one, they have to be independent. By the way, this is common sense. If someone is not independent, like, let me give you an example. Mike, if I work for Oppenheimer, guess what kind of mutual funds you’re going to get?
MIKE: Oh, it’s Oppenheimer.
BRIAN: If I work for Merrill Lynch, Bank of America, Merrill Lynch, guess what kind of mutual funds you’re going to get?
MIKE: It’s the mutual funds of the company they represent. And it makes sense why they would recommend something like that, because don’t they get paid more?
BRIAN: They get paid more to have you invest in those funds. Is that a fiduciary? No. They’re putting the company and their own best interests before your best interests. Do Oppenheimer funds perform the best? No, they don’t. We do the homework. The approach at Decker Retirement Planning when it comes to risk money is we go out in contrast, we go out to the largest database of mutual funds in the world, the Morningstar Database, and we use the Wilshire Database for money managers, the largest database of money managers in the word.
BRIAN: We also look at Theta and Timer Track, and we look and try to find who is beating the six managers that we have. Our approach to risk money is mathematical. That’s how it should be. I don’t know why everyone isn’t doing this, but that’s how it should be. If you’re an independent company and you can work with any company, why in the world would you work with third or second-rate type of mutual funds or-or money managers.
BRIAN: One of the first things we talk about here, the three-fold way to find out if your adviser, your banker or broker is a fiduciary is number one, they must be independent so that a company, their parent company, doesn’t have the power to tell them what they can and can’t work with you on. They can’t be limited on the type of financial instruments that are out there.
BRIAN: Number two, they’ve got to be Series 65 licensed. We are Series 65 licensed at Decker Retirement Planning. That means that when it comes to securities, we are fee-based only. Fee-based only. It has to be above-board, fully transparent. We can’t hide commissions like the bankers and brokers do, who are Series 7 licensed.
BRIAN: A Series 7 banker or broker can tell you that you need non-traded reits and put them in your portfolio. Is that in your best interest? Well, let’s talk about it. He just got paid 12 percent commission off of your money. It doesn’t show up, it’s totally invisible, because on your statements that you get each month, it just says that you put in 50,000 dollars and it shows 50,000 dollars. It doesn’t show that you just paid him out of your principal, 12 percent.
BRIAN: The other thing that we see quite a bit are variable annuities, variable annuities. Mike, do we like variable annuities?
MIKE: No. To put it plain and simple, no.
BRIAN: Yeah. We think they’re a scam. Variable annuities is where the banker broker get paid eight percent right up front. They get paid every year you own it, and the insurance companies get paid every year you own it, and the mutual fund companies get paid every year you own it. Three layers of fees that usually add up to five to seven percent before you make anything.
BRIAN: They lag the markets when the markets are going up because of all the fees. They don’t provide any protection when the markets go down. In my opinion, Elizabeth Warren, Democrat from Massachusetts that started the ball rolling on the DOL regulations, drug the bankers and brokers kicking and screaming into Phase One of fiduciary transparency so that you, the public, can see what kind of commissions that you’re spending.
BRIAN: This small amount of transparency that is being required by law as of June 9th, does that make them a fiduciary? No. They are still Series 7 licensed, commission-based, focused salespeople. They are not fiduciaries. I’m going to get to the third one in a second, but I want to warn you of non-traded reits because they don’t offer any liquidity.
BRIAN: So they’d say, “Well, you’re a long-term investor.” Well, markets cycle. How did reits do in 2008? They were down 70 percent. Most of them were down 70 percent. You can’t play that game in retirement. You work 40 years, you accumulate assets, and then what? Put them in a non-traded reit that cycles like that? That makes no sense, so in this radio show today, we’re going to focus on the problems of the bankers and brokers.
BRIAN: This three-fold fiduciary requirement of being independent and being Series 65 licensed so that it’s fee-only is very important. The last thing I want to mention when it comes to Series 7 licensed stockbrokers, bankers, advisers, they hide other commissions. These are the three biggest ways. We talked about non-traded reits, variable annuities. The last one I want to talk about are C-share mutual funds. C as in Charlie.
BRIAN: Mike, if you came in and asked me, “Hey, I want some mutual funds, but I don’t want any front-end loaded funds,” that’d be a good request, right? Because why would you want to pay five, three, four, five, eight percent upfront commissions? Why would you want to ever do that?
MIKE: It doesn’t make sense.
BRIAN: It doesn’t make any sense. Or this is even better for the banker or broker. How about a 12b1 fee at the end coming out? A back-end loaded fund where you grow the money, you grow your 50,000 to 100,000. Now you pay a fee on the back side, which is even worse because markets go up, hopefully. And now you pay a big back-end fee to the banker broker.
MIKE: Can I ask you a question about that back end fee, too? Because there’s a psychology or an emotional part of the market, as well. If markets are going down and your mutual funds have back end fees, do people, and this is probably an opinionated question, I don’t have the science behind it. But do people typically stay in longer and have more losses because they’re hoping it will bounce back because they don’t want to pay that back end fee?
BRIAN: Yes. The back end fee emotionally anchors people into their investment and ties them to their adviser because they never want to pay that fee.
MIKE: So mentally it hurts the liquidity in a psychological way, and retirement’s all about income. If you can’t pull your income out, you can’t manage your investments, it’s just like your putting yourself a mental roadblock in your investments.
BRIAN: It’s locked up. All right, C share mutual funds is where the banker broker tells you, “Hey, John and Jane, no front end fees, no back end fees.” What they don’t tell you, which a fiduciary could never do, but what they regularly do, bankers and brokers will sell you C share mutual funds that pay them one percent. They never told you about that. One percent, it doesn’t show on your statements, but that’s one percent on top of the mutual funds charge of one percent.
BRIAN: Typically in mutual funds there’s a one percent fee for domestic funds. It’s higher for international. It’s even higher for emerging markets. One percent for domestic, 1.5 percent for international, and probably 1.7, 1.8 to sometimes I’ve seen two percent fees for emerging market funds. And then the banker broker charges you one percent on top of that.
BRIAN: These C share mutual funds are so toxic that Schwab, Vanguard, Fidelity and TD Ameritrade will not allow them to be transferred into their system. They require you to sell them where they are, like leprosy, before they’ll bring those funds into their firms. So we’ve talked here about being a fiduciary. Bankers and brokers will tell you that they’re fiduciaries when, I’m going to give you number three in a second.
BRIAN: There’s a three-fold test to find out if your adviser is a true fiduciary. Number one, they have to be independent. We’ve talked about that. Number two, they have to be Series 65 licensed so that they are fee-only when it comes to securities so that they don’t perform the nonsense which started the ball rolling on all the DOL regulations for more transparency because the consumer has been shafted by the bankers and brokers with non-traded reits, 12 percent commissions, variable annuities, eight percent commissions, and undisclosed C share mutual funds that are horrible.
BRIAN: So these are examples of Item Number Two, to be Series 65. The third and final test of a true fiduciary is someone whose corporate structure is an RIA, Registered Investment Advisory. If your banker, broker or adviser has all three, they are true fiduciaries. They have regular audits from the state to make sure that what they are recommending you is suitable.
BRIAN: Key word, suitability is the standard where in audits they look and make sure that what is requested, what’s in your portfolio, is suitable to the client. And a third-party auditor from the state will come in and make sure that what is being recommended and working, what the firm is working with their clients on is actually suitable. We have regular audits. Other companies, bankers and brokers do not.
BRIAN: I was, let’s see, 10, 12 years as a financial adviser, banker broker. How many audits did I have, Mike?
MIKE: I doubt you had a single audit.
BRIAN: Not one. As a fiduciary, we have regular audits. All right, so Number One, here’s a couple of quotes. And Mike, you’ve got to help me with this because I don’t have it up in front of me. I’m going to go off memory. But Art Levitt, past SCC Chairman, I remember this one. He said that, “If you have more than 50,000 to invest, you should fire your broker and find an investment adviser,” which is a fiduciary like us.
BRIAN: Warren Buffett, he’s got the great quote that talks about how brokers are like doctors. Do you have the quote?
MIKE: Yeah, I got this one. So, “The broker is not your friend. He’s more like a doctor who charges patients on how often they change medicines, and he gets paid far more for the stuff the house is promoting than the stuff that will make you better.”
BRIAN: I love the Warren Buffett quotes. Okay, so on this first point, and here we are, almost 25 percent through the radio show. We want to emphasize that you owe it to yourself, Decker Talk Radio listeners, to do business with a fiduciary. A fiduciary is someone required by state law to put their clients’ best interests before their company’s best interests. The bankers and brokers are, and this is Point Number Two, trained to deal with you with an accumulation plan. That’s what we’re going to talk about next.
BRIAN: All right. So let’s talk about the second reason that we have an issue with the banker broker model, and it has to do with the pie chart. It’s an accumulation strategy. It’s called the asset allocation plan, and it’s created by giving you a risk questionnaire. You fill it out, submit it, and the bankers and brokers produce a diversified pie chart of mutual funds that diversify your investment with bonds, money market, cash and stock, diversified stock investments.
BRIAN: All your money is at risk, so strike one is when it comes to the accumulation model, we at Decker Retirement Planning are totally fine with it in your twenties, thirties and forties. It’s totally fine. It’s a plan where you ride out the market hits that come every seven or eight years, you stay invested and, by the way, we’re going to offer a very important alternative to paying fees for this, ‘cause in your twenties, thirties and forties, I’ll just tell you this right now.
BRIAN: There’s something new as of the last three years called Robo investing. Mike, you remember we talked about this? Robo investing?
MIKE: Oh, yeah. It’s brilliant if you want to do this type investments.
BRIAN: Accumulation.
MIKE: Yeah, if you want to do that, that’s great. I don’t think we’d recommend it, but if you want to do it.
BRIAN: Wait. We are recommending it if you’re in your twenties, thirties and forties.
MIKE: Oh, absolutely, yeah.
BRIAN: We’re making this critical point that why would you pay a money manager or a banker or broker or an advisor, why would you pay them fees to do what you can do for free and make more money? So listen up, Decker Talk Radio listeners. If you’re in your twenties, thirties and forties, write this down. Pull over.
BRIAN: This is very, very important. Robo investing is something that you should look up and find, and you will find it at Vanguard, Fidelity and Schwab. They will take you in, give you a risk questionnaire, diversify your assets, but now you’re diversified with the indexes. The S&P Index, the NASDAQ Index, the emerging market index, all the different indexes, and you will own them through ETFs, exchange traded funds. Fees go way down. Most fees are around four basis points, which is 0.04 percent instead of one percent.
BRIAN: Next, you own the indexes. The S&P Index is an example where 85 percent of money managers and mutual funds under-perform the S&P every year. So you’re making more money, you have automatic rebalancing by computers that automatic rebalance you every day. You don’t have any management fee, and your trading fees are way low. So if this is something that you’re going to do, buy and hold an accumulation strategy, we want to make sure that you know about Robo investing.
BRIAN: Anyone who’s paying a manager is ignorant of this Robo investing option. All right, having said that, do we have a problem with the asset allocation pie chart when you’re over 55? Yes. There’s many problems with it when you’re over 55 years old, so let’s talk about it. Problem Number One, Strike One, all your money’s at risk, all of it. You worked 40 years.
BRIAN: Mike, how would you feel if your advisor said, “All right, we’re going to have all your money at risk for the rest of your life.” Would that make you uncomfortable?
MIKE: Yeah, I would lose sleep over it.
BRIAN: Yeah, okay. Totally unnecessary, so we’ll show you a contrast in a second, but Strike One is all your money’s at risk and they’re recommending it.
MIKE: They don’t say it’s technically all at risk. They’ll say, “Oh, well, we’ve got bonds and bonds are safe, or bond funds are safe.”
BRIAN: Yeah, we’re going to go there.
MIKE: Okay.
BRIAN: We’re going there. Why would an adviser, who’s not a fiduciary, by the way, why would a banker, broker, adviser tell you to keep all your money at risk?
MIKE: That’s how they get paid.
BRIAN: That is how they get paid. If you put your money in CDs, treasuries, corporates, agencies, municipal bonds, they don’t get paid a management fee on those funds anymore.
MIKE: I mean…
BRIAN: They keep you in mutual funds and the pie charts so that they can charge you a management fee. It’s called a wrap fee agreement, on all of your money. They are incented to keep your money at risk. One quick story. The manager that I had in one of the brokerage firms that I was employed by early in my career would walk by the office and tell me that, “Brian, we get paid to keep clients at risk.”
BRIAN: We don’t get paid for CDs, treasuries, corporates, agencies, municipals. We get paid to keep our clients at risk.”
MIKE: Well, I wanted to just bring in the analogy, if you go to a car salesman, he’s going to sell you a car, right? If you talk to someone who just helps out with transportation, I don’t think there’s a transportation expert. He’s going to say, “Okay, you only live two blocks away from work and your house. You probably don’t need a car,” right? These bankers and brokers are going to sell you what puts you at risk. It’s that simple. They’re not going to take into account the other aspects of what you might need or what might be best for you.
BRIAN: Early in my career, another quick story and we’ll move on. Early in my career, I used to play basketball in Seattle during lunch hour and I had a buddy that, well, I said, “All right, let’s go.” The phone rang and he picks it up, and it was someone who wanted to sell a few thousand shares of General Electric. So he took the order and said, “Yeah, I think it’s a good move.” And then just when we were leaving to go play basketball, the phone rang again.
BRIAN: He goes back and picks it up. It was a different client who wanted to buy a few thousand shares of General Electric, and he told him it was a good idea. I go, “What? What just happened there?” He goes, “Hey, I’m not going to contradict the client. If the client wants to buy it and he’s wrong, I’ll let him be wrong. I don’t want to talk him out of it and me be wrong.” Does that make any sense to you?
MIKE: Nope, but unfortunately that happens more often than I think the industry would like to admit.
BRIAN: Yeah. Okay, the industry’s going to recommend, because they’re salespeople, what you want to hear. So what do you want to hear at the top of the market? You want to get more and more aggressive. What do you want to hear when the markets get creamed? They want to have you be buying or going to cash when the market’s low. That’s why a 100-year history of the S&P average annual return is 8.5 percent. I don’t think it’s 100 years.
BRIAN: The biggest study I’ve seen that is in the last, say 40 years, if the S&P’s return is eight percent, do you know what the individual investor’s average return is?
MIKE: It’s got to be significantly less, two?
BRIAN: Two percent is right. It’s because people have fear and greed. Fear keeps them from being in the markets when it’s low. Greed keeps them from being more cautious and lightening up when the market’s high. All right, so when we talk about having all your money at risk, once you’re over 55 years old, by the way, another thing about having all your money at risk.
BRIAN: In your twenties, thirties and forties, you can ride out the stock market cycles, but after you’re over 55 years old, this is common sense. Markets cycle, and it doesn’t make sense when the markets cycle down every seven or eight years for you to take those hits. First of all, I’ll tell you the history on this. From October of ’07 to March of ’09, that was a 50 percent hit. Seven years before that, 2001, Twin Towers went down. That was the middle of a three-year bear market, 50 percent drop.
BRIAN: Seven years before that was 1994, Iraq had invaded Kuwait. Interest rates went up. We had an economic recession, and the stocks struggled that year. Seven years before that was 1987, Black Monday, October 19. One day, 30 percent hit. Seven years before that was 1980. The ’80 to ’82 bear market was over 40 percent. Seven years before that was ’73, ’74 bear market. That was 46 percent.
BRIAN: Seven years before that was ’66, ’67 bear market. That was a 42 percent bear market, and it keeps going. So seven years plus when the market bottomed March of ’09, that brings us to present day. Markets cycle, and for a banker and broker to tell you to keep all your money at risk and take these hits every seven or eight years, the typical person’s in retirement for 30 or 40 years, that’s four or five stock market hits like ’08.
BRIAN: Why would any person that’s a fiduciary have their clients take those hits? By the way, a fiduciary wouldn’t. We don’t. We don’t take those hits. We don’t have our clients take those hits.
MIKE: A fiduciary does their homework.
BRIAN: Right.
MIKE: And we do our homework.
BRIAN: Right. So mathematically, remember this is a radio show of common sense here today. We’re talking about the problems in the banker broker model. If you buy and hold and you’re over 55 years old, you’re ignorant, number one. And it doesn’t make common sense, number two, to take a 30 or 40 percent hit, wait four years to get back to even, and what? You’re not going to draw any money when your principal is down 30 or 40 percent, ‘cause if you do, it’s financial suicide.
MIKE: Yeah. So if you’re just tuning in right now, this is Decker Talk Radio’s Protect Your Retirement. You’re listening to Brian Decker, a licensed financial planner and fiduciary from Decker Retirement Planning.
BRIAN: All right. So Mike, I want to just finish the thought on this, and that is that our clients don’t have all their money at risk. Our clients have about 75 percent of their total investable assets, principal guaranteed in the different buckets.
BRIAN: Bucket One provides income for the first five years. Bucket Two provides income for years six through 10. Bucket Three for years 11 through 20, and the risk account is free to grow for 20 years and then provide income for the rest of your life. Because the risk account mathematically is able to grow for 20 years, it is about 25 percent of the portfolio. So when clients come to Decker Retirement Planning, they get significantly less risk, as in 75 percent less risk, which also translates to 75 percent less fees. Bankers or brokers will charge you on all that.
BRIAN: So the reason that our clients that did the planning in 2008 did not get hurt is because their emergency cash Bucket One, Two and Three, are principal guaranteed and they lost nothing. The risk accounts that we’re using today, back in 2008 made money. They made money in 2000, ’01 and ’02 and ’08. These are two-sided trend-following mathematical models, and that’s what we’re using today, and they made money in 2008.
BRIAN: All right. Now this is called an accumulation strategy that the bankers and brokers use. What do we call ours? Ours is called a distribution strategy. Just like the football games have two halves, the first half of your life is for accumulation, to accumulate assets. Totally fine, totally logical. The second half of your life in retirement is distribution strategies, where you’ve got to protect what you’ve got and distribute income for the rest of your lives.
BRIAN: All right. The next problem that we have when it comes to the banker broker model, has to do with something called the Rule of 100. This makes no sense. Right now, the 10-year treasury is at or near all-time record lows at 2.1 percent. There’s only been one time in the history of our country where the 10-year treasury yield went below two percent. We are almost right at two percent right now.
BRIAN: So with our interest rates at or near all-time record lows, the Rule of 100 says this. Tell me if this makes sense to anyone listening. If you’re 65 years old, you should have 65 percent of all your investable assets in bonds or bond funds. If you’re 70 years old, 70 percent, 75, et cetera. So that means that if you’re 65 years old, you have 65 percent of your investment portfolio earning almost nothing, almost nothing. Does that make any sense, Mike?
MIKE: No, not at all.
BRIAN: And then here’s the bigger issue. The bigger issue is interest rate risk. What happens when interest rates go up? Well, bond funds, just like two plus two is four, bond funds lose money when interest rates go up. So when, not if, when interest rates go back up, the people that have been sold by the Rule of 100 to put 65 or 70 percent of their investable assets in bonds or bond funds are going to lose serious principal.
BRIAN: In 1994, the 10-year treasury went from six to eight percent in one year. According to Morningstar, the bond funds that year lost an average of 20 percent, two-zero percent. In 1999, the 10-year treasury went from four to six percent. According to Morningstar, the average bond fund lost 17 percent. If we go from where we are right now, at 2.1 percent, back to just four percent where we were a couple years ago that would be a hit to principal of almost 20 percent on what bankers and brokers are telling you is your safe money.
BRIAN: This, in our opinion, is financial malpractice. We have a major problem with the banker broker model that uses the Rule of 100, keeps all your money at risk, and tells you to ride out the stock market and take hits of every seven or eight years. All right, now I want to talk about the biggest problem, the [INAUDIBLE] number one major issue that we have with the banker broker model, which in our opinion is responsible for destroying more people’s retirement than any other financial strategy out there. And it is?
MIKE: I’m going to take a wild guess and say the four percent rule.
BRIAN: The four percent rule is right. The four percent rule works like this. The four percent rule says that stocks have averaged around 8.5 percent for the last hundred years. Bonds have averaged around 4.5 percent for the last 37 years. So let’s be really safe and just draw four percent from your assets for the rest of your life, and you should be fine. The problem with that is that that works beautifully when the markets are trending higher.
BRIAN: Markets don’t trend higher for 40 years in retirement. They don’t. Markets don’t trend, they cycle. So when you get into a flat market cycle, by the way, anyone can pull this up. Decker Talk Radio listeners, you can Google the chart. Go to Images and type in 18-year market cycles and you’ll see the proof that markets don’t trend, they cycle. From 1946 to 1964, stocks were in a nice bull market, 18-year bull market.
BRIAN: From ’64 to ’82, the markets were flat and choppy. ’82 to 2000, the biggest bull market we’ve ever had, and since January 1, 2000, we’ve been in kind of a flat market cycle. S&P average is around 8.5 percent. Since January 1, 2000, we’ve had half that growth. By the way, we’re due another major correction in the markets, and when we get that, it will complete the cycle for 18 years and we’ll be at or near very flat returns for 18 years.
BRIAN: So let’s do this. I want to prove this mathematically that the four percent rule is an absolute disaster. Decker Talk Radio listeners, we will extend to you four million dollars of Monopoly money and retire all of you January 1, 2000, the beginning of the latest flat market cycle that we’re in. So you all are retired, you all have four million dollars. That’s the good news. The bad news is markets struggle over the next three years.
BRIAN: You lose 50 percent, but actually you lose more because you’re drawing four percent a year. Four, four and four, you’re down 62 percent on your stock portfolio going into 2003. The good news is the markets double, but you don’t get all that because you’re drawing four percent every year in ’03, ’04, ’05, ’06, ’07, and then you take that hit of 37 percent in the markets, plus four percent, and now you are toast.
BRIAN: You are done. You no longer mathematically have the funds to stay retired. Proof of what I’m telling you is we saw many hundreds of thousands, millions of people across this country, gray-haired people who had to go to Plan B. We saw them go back to work in banks, fast food, retail, Walmart. They had to sell their home, go back, move in with the kids. They had to go to Plan B because the four percent rule destroyed their retirement.
BRIAN: The guy who invented the four percent rule, William Bengen, and we have his quotes on our Website at deckerretirementplanning.com, William Bengen said in ’08-in ’09, I’m sorry, that the four percent rule doesn’t work when interest rates are this low. And yet the bankers and brokers still use it. Since it’s baseball season, I want to give three strikes on the banker broker model.
BRIAN: Strike One is that they have all of your money at risk in an accumulation plan. Strike Two is they used a Rule of 100 to put two-thirds or three-quarters of your money in it when interest rates are this low and it’s earning almost nothing, and you have significant interest rate risk when interest rates go back up. Strike Three, where we hope you get up and walk out, is when they tell you that they’re going to use the distribution strategy called the four percent rule to distribute income for the rest of your life.
BRIAN: We cite these as major problems for the banker and broker strategy. At this point I want to contrast the banker and broker strategies with what we do. So when it comes to distributing assets, bankers and brokers have all your money at risk. We at Decker Retirement Planning have about 25 percent of their money at risk.
BRIAN: Bankers and brokers are salesmen. Decker Retirement Planning planners are fiduciaries. Bankers and brokers will charge you on all of your money at risk. Decker Retirement Planning charges you only if you want us to manage money on about 25 percent of your money at risk. Bankers and brokers will use mutual funds, bond funds, when interest rates are at all-time record lows and use the Rule of 100 to put your “safe money,” and it has significant interest rate risk.
BRIAN: Decker Retirement Planning, in contrast, uses principal guaranteed accounts. By the way, our principal guaranteed account has averaged around 5.5 percent for the last 15 years, and Bucket Three has averaged 6.5 percent principal guaranteed. That’s worth coming in and checking out.
MIKE: All right, Brian, I believe we’re just over halfway, and we only have about, what, 10-15 minutes left in the show.
BRIAN: Yeah. I’ve got more to talk about. I want to contrast the banker and broker model of your risk money, and they’re going to tell you to buy and hold. Now this is going to make you angry, Decker Talk Radio listeners. The contrast of how the bankers and brokers invest your risk money, they tell you to buy stocks and buy and hold them. Well, here’s the problem that we have with buy and hold stocks.
BRIAN: Stocks journey through a three-fold cycle. There’s a growth phase, a maturation phase and phase of decline for every single stock out there. So give me an example. Microsoft has its growth phase in its eighties and nineties, had its maturation phase. The stock hit 160 pre-split in November of 1990, 1999, and it did not make any money, it didn’t exceed that for almost 16 years.
BRIAN: So it hit a maturation phase and talk about decline phase. Let me give you a classic example. AT&T, when I cut my teeth as a stockbroker in the eighties, I was told that AT&T is a grandmother’s stock. It grows, it pays a dividend, and it raises its dividend every year, and it was a no-brainer. You bought AT&T. Well, AT&T was a no-brainer until cell phones were invented.
BRIAN: And then AT&T lost 75 percent of its assets, cut their dividends and people got hammered. By the way, another no-brainer. Blue chip stock was Sears. How’s Sears doing today? Well, Amazon is to Sears what cell phones are to AT&T. There is something called creative destruction. It’s always been and always will be a part of our evolution in technology and providing services to consumers.
BRIAN: Why in the world would you buy and hold any stock, any stock, when creative destruction takes all your years of gains in the growth phase, puts them flat for 10 or 15 years in the maturation phase, and then you lose 75 percent of the decline phase. What I’m telling you is a fact, and it flies in the face of buy and hold.
BRIAN: What we recommend, and by the way, that’s just individual stocks. When it comes to mutual funds, mutual funds are chosen by bankers and brokers by how they get paid the most. We’ve talked in the early part of the radio show about Robo investing. If you’re going to be a buy and hold person in your twenties, thirties and forties, we hope that you’re not paying any manager any fees, because Robo investing allows you to cut fees and outperform by holding the ETF indexes, and it’s something you should contact Schwab, Fidelity and Vanguard.
BRIAN: If any one of you have a buy and hold strategy and you’re paying your manager fees, you’re ignorant. You need to look up Robo investing and contact Schwab, Fidelity and Vanguard. Okay, what we do when you’re over 55 years old, you cannot take these market hits of every seven or eight years in our opinion, and there is something called two-sided strategies. They’ve been around for 30 years. This is going to really bother you.
BRIAN: The market’s a two-sided market. It goes up and it goes down. Most people, 95 percent of this country, have a one-sided strategy in a two-sided market. That means that they’ll make money when the markets go up, and they will take those hits every seven or eight years when the markets go down. I told you at the outset that this show, this radio show today, is a common sense radio show, and to buy and hold when you’re over 55 years old in a two-sided market, to have a one-sided strategy in a two-sided market, makes no sense.
BRIAN: So what we do is we use a two-sided strategy in a two-sided market. That means that as the markets go up, you track with the market. When the markets go down, you make, not lose money. These two-sided models are designed to make money in up or down markets. Let me give you an example. We have six managers. How were they chosen? They were chosen by going through the databases with a calculator and looking and seeing-and by the way, I still do this.
BRIAN: As an independent company, I’ll just finish that thought later. As an independent company, we’re constantly looking to find better. So every quarter I go to the Wilshire Database and the Morningstar Database, and I want to find out who’s beating the six managers that we’ve got. And every quarter I get around 60 or 70 that legitimately beat us, but they fall into four categories.
BRIAN: Number one, yes, they’re beating us, but they’re closed to new investors. I can’t work with that. Number two, they’re hedge funds, and we’re not going to work with that. Why wouldn’t we work with a hedge fund? It’s because of how they are paid and how they are incented. Let me give you an example. Let’s say that, Mike, you and I are New York hedge fund managers. We get paid two ways. What keeps the lights on is the one percent management fee, but what puts Ferraris in our garages is the two and 20.
BRIAN: We get paid 20 percent on all returns above two percent. So if we enter into 2017 or, say it’s November 2017, we’re down five percent for some reason. I’m just making this up. What are we going to do? We’re going to goose that portfolio really hard with options, futures, derivatives and leverage to get that sucker up there because we know that we’ve got to get that return up above two percent for us to get paid. A lot of times that strategy blows up on you and we destroy your retirement, but for us as hedge fund managers, we say, “Eh, no biggie.”
BRIAN: We’ll just start another hedge fund. We at Decker Retirement Planning cannot in good conscience, because we’re fiduciaries, invest client money, especially retirement money, in a hedge fund. We won’t do that. So the second group that are beating our six managers, if they’re hedge funds we just move on.
BRIAN: The third, this is the biggest reason that some are beating us, but we can’t use them, and that is their per-account minimum is three million or more. We can’t diversify that. And then the fourth and final group of managers that are beating us, but we can’t work with them, is because they’re high-beta.
BRIAN: We call these rollercoaster funds. In the good years, they go way up. In the bad years, they get creamed. Two mutual funds that fall into this category are the Bruce Fund and CGM Focus. They go way up when the markets are doing well, and in 2008, they both lost over 40 percent. So we’re not going to use that. What is left are six managers that I’m going to describe in detail right now.
BRIAN: All right. Three of our six managers are equity focused, so one manager average annual return since 2005 is 19.2 percent net of all fees. Since then, 100,000 in the S&P since ’05 grossed 200,000; 100,00 with this manager grossed 800,000. He’s very, very good.
BRIAN: The reason he’s good is because we went through and found out mathematically the best performing managers. Manager Number Two, he trades the NASDAQ 100 Index the QQQs. His average annual return, net of all fees is 23 percent. He made money in the period of 2000, ’01 and ’02 when most people lost 50 percent. By the way, the NASDAQ was down 70 percent in 2000, ’01 and ’02, and he made money over that period.
BRIAN: Then he made a lot of money ’03 to ’07. He made 23 percent in 2008, and he lost money. He lost a little, he lost two percent in 2000. He made over 100 percent in ’01, and then he made big money in ’03, ’02. He made 23 percent in ’08. He hasn’t had a losing year until last year, 2016. He had one losing year, but his average annual return is 23 percent per year net of fees.
BRIAN: The third and final manager that we have on the risk side has average annual returns of 18 percent. He made 17.5 percent in 2008. He’s done very, very well. These are our three managers that are three of the six that we use. The other three that we use, and Mike, I keep using this expression. We swerved into genius when we mathematically chose these managers.
BRIAN: There’s four asset groups that you can take to the bank are going to go up every time the markets get creamed. They are treasuries, oil, gold and silver. So guess what our four other managers trade in?
MIKE: Well, it’s those. It’s gold, silver. It’s treasuries.
BRIAN: And oil.
MIKE: And oil.
BRIAN: That’s it. So our oil manager average annual return is over 30 percent. Treasury manager average annual return is over 20 percent. Our gold manager average annual return is 29 percent. Silver manager average annual return is 49 percent. These are third-party verified client account net of fee performance.
BRIAN: In 2008, these managers had some of their best years and so we fully expect that with our risk managers when the markets get creamed, and they will, that our people, our clients at Decker Retirement Planning, that they’ll be in a good spot.
MIKE: All right, now Brian, anything else you want to wrap up before we close down the show?
BRIAN: Yeah. So let’s talk about the banker broker model is totally fine in your twenties, thirties and forties. It’s an accumulation vehicle. They charge fees on all of it. We’ve given some great advice here about how to get rid of and save the money on paying that one percent fee, to a manager. In our opinion, you shouldn’t be paying management fees on a buy and hold strategy.
BRIAN: You can do that yourself through Robo investing. Contact Schwab, Fidelity, Vanguard. Ask for the Robo investing model. You’ll invest in the ETF indexes and save yourself a lot of money. If you’re over 55, go to our Website, deckerretirementplanning.com, check out how we describe how we invest. We have quite a different strategy. Instead of accumulation strategy, it’s distribution strategy.
BRIAN: The distribution strategy, when clients are over 55, Mike, the number one fear before 2008, what was it?
MIKE: It was public speaking.
BRIAN: Wait. Number three was the fear of death. Number two was the fear of going to war.
MIKE: Yeah. Jerry Seinfeld had that great bit about that, how people would rather die, or would rather go to the front lines or die than public speak.
BRIAN: Okay, that is funny. All right, after 2008, for people 55 and older, the number one fear in this country was and still is?
MIKE: Running out of money before you die.
BRIAN: Number one fear is running out of money before you die. A lot of clients don’t know if they can retire and are afraid of running out of money during retirement. Those are the two big questions that we get at Decker Retirement Planning. When you come in to see us or any of our planners, you will see something refreshingly logical and common sense focused.
BRIAN: It’s a spreadsheet. It’s called a distribution plan. I’m going to describe the spreadsheet in detail in the last minute and a half.
MIKE: Yeah, go.
BRIAN: I can go. It’s a spreadsheet that shows all your income sources. So if you have rental real estate, we show it. If you have pensions we show it. Income from your assets, we show that. And we show your Social Security. We total it up, minus out the taxes, and that gives you annual and monthly income with a three percent COLA to age 100. The number one fear of running out of money before you die, our clients at Decker Retirement Planning don’t have that because they see mathematically how much they can draw for the rest of their lives.
BRIAN: If you don’t do these calculations, and by the way, this is the number one reason that people come to our firm, is because we are math-based. We will take the assets you have, show you all your income sources, and we will show you mathematically how much you can draw for the rest of your life. So that number one fear of running out of money before you die, our clients don’t have it. Number two, can you retire?
BRIAN: How are you going to know that? We mathematically take your assets, find out how much money you need in retirement, and then we do the numbers to find out if you can retire. And if you can retire, great news. If you can’t, we put a plan together to help you get retired and tell you how many years that will be.
MIKE: It’s simple math. Alright, for more information on these retirement strategies, visit deckerretirementplanning.com for also this show as they put it up there, and previous shows, as well as a series, a whole slew of articles, on the topics.
MIKE: Have a great week. We’ll talk to you next week. Take care.
