# Investments with guaranteed income



## Carolyn (Apr 16, 2013)

I have found over the years that TUGgers are such smart people. My husband and I are just turning 60 and our home will be paid off in a few months...Yay!! We would like to retire in the next few years, if not sooner. Our dilemma is where to put some of our money with a decent return, no or low fees, and protecting our principal at the same time. My husband loves the stock market but I almost feel as it is just like gambling and at times there is no rhyme or reason in its fluctuation. Do any of you have Financial Advisors...pros and cons? All of our current investments and money are with Schwab. Any insight or website recommendations  would be greatly appreciated.  Thanks!!


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## ronparise (Apr 16, 2013)

Lets see...you want safety of principal, decent returns and low fees...Sorry, you cant have that. Investments of that sort dont exist

I assume you dont need your portfolio to throw off an income, or you would have said so. ie you will be reinvesting dividends and interest

If you need your portfolio to throw off an income that you need for day to day expenses, the ignore what I say next


The only risk free investments where your principal is guaranteed are government bonds, bank cds and insurance company annuities. The problem is they dont meet your criteria of decent return

You need to understand and accept the fact that the higher return you ask for; the greater risk you have to accept, so set your goal for a rate of return and then build your portfolio accordingly

I would try to build a balanced portfolio. Some income and some growth  and some real estate thrown in for good measure(reits),,Traditional advice would be to have the percentage of safe income oriented investments (bonds and cds) equal your age ie 60% in income and 40% growth.  and each year rebalance your portfolio to hit the the right percentages

My advice is to put more on the growth side..after all at age 60 you still have a long life ahead of you


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## Passepartout (Apr 16, 2013)

I think you might feel comfortable with a fee-only financial advisor. One who has no personal stake in selling you high 'load' investments designed to pay him/her handsome commissions. You pay these people for the time they put in going over your investment portfolio and giving advice on 'tweaking' it to tailor it for your desired results. This should dovetail well with your 'do it yourself' Schwab account.

I have such a guy and feel quite comfortable with this approach. Incidentally, most of my holdings have been bought through a Fidelity brokerage account, along with a couple of 'immediate annuities' bought as I retired, to provide income to cover my day-to-day expenses (plus a cushion). The bulk continues to be in equities, still growing inside tax-deferred retirement accounts.

Jim


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## geekette (Apr 16, 2013)

Carolyn said:


> I have found over the years that TUGgers are such smart people. My husband and I are just turning 60 and our home will be paid off in a few months...Yay!! We would like to retire in the next few years, if not sooner. Our dilemma is where to put some of our money with a decent return, no or low fees, and protecting our principal at the same time. My husband loves the stock market but I almost feel as it is just like gambling and at times there is no rhyme or reason in its fluctuation. Do any of you have Financial Advisors...pros and cons? All of our current investments and money are with Schwab. Any insight or website recommendations  would be greatly appreciated.  Thanks!!



If you are seeking *guaranteed *income, you will lock in to extremely low rates and increase your risk of not having enough money.  You will get to keep what you have, but not gain much more.

Without risk, the rewards are small.  

Stock market is not gambling, unless one runs out to buy on "hot stock tips" overheard.  Otherwise, just like a timeshare purchase, due diligence will inform as to what you are buying and whether it's an appropriate purchase for you.  not every company that offers stock is "risky", nor are all "safe".  I think it's important to separate out The Market from distinct stocks to get away from the gambling feel you have about it.  There is no black hole.  Buying stock in a company means you own a sliver of that company.  Who cares what the Dow does if you own 5 stocks that aren't in it?

If it is income you seek, it is worth looking at Dividend Aristocrats, those very few companies that have been not only paying, but Raising dividends for 25+ years.  The price will go all over the place (stock market runs on speculation and investor sentiment, things you cannot control).  They will Be Very Likely to keep on paying you dividends, plus you still have the shares to sell later (or never).

Why not allow your husband to seek out a couple issues with a modest slice that you would be comfortable with and give it a go for a year or two to see if Blue Chip Aristocrats fit the bill?  If you reinvest dividends you will witness the secret sauce of compounding dividends.   Likely none of these giant companies is going to go out of business in 2 (or 20) years to cost you all of your investment.  That is really how one loses money in the stock market, not price swings, although the most common way to lose money in the stock market is to buy high and sell low To Lock In A Loss.   When people say they lost money in the stock market, it is usually because their fear or emotion caused them to make that kind of mistake. While my account balances have gone up and down, I have never lost money in the stock market because I have not sold for less than I paid.

I am my own fi advisor so no recs there.  The only stocks I own are div payers, so no IPOs or flashy new whatevers.  And I do my own research.  SeekingAlpha is my current fave site, Investopedia can answer many questions.

Good luck!


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## am1 (Apr 16, 2013)

Inflation will be your biggest concern.  It will easily  erase any of your gains.


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## normab (Apr 16, 2013)

I agree with previous recommendations to get a fee-only advisor, to diversify and buy dividend aristocrats.  Some folks are more comfortable with mutual fund investing, if you do that pick low fee funds so you don't give away too much money in fees.

I also strongly urge you to learn about what you are doing.  I was in the same place you are about 15 years ago, and someone told me to start learning, so I pass on that advice.   You can read magazines like Money and Kiplingers, and there are plenty of easy-read personal finance books out there,  so you UNDERSTAND what you are doing and why you are doing it.  Otherwise, you will get nervous every time the stock market drops.  

Managing your money so it lasts a lifetime is a part-time job in retirement.  It's too important to think you can delegate it to someone else, and trust them to make the decisions you need to.  I think an advisor is good to get feedback from, but you should have your own ideas too. 

You say all your investments are with Schwab. They may offer webinars you can listen to.  Don't rush to make changes until you are comfortable with what you're doing.

Just my 2 cents worth.  Which will someday be 25 cents worth if I invest well.


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## pacodemountainside (Apr 16, 2013)

I too  am own FA having a minor in   Finance  and been in stock market since 20 years old.

A couple of  good rules are avoid commission based FAs and   stick with no load,  low fee MFs.

I really don't see  stock market as  gamble although it is true there is a winner and loser on each trade.

In my case I took a big hit in last  big drop, but today after taking mandatory withdrawals of  just under 4% of  principal  IRAs are worth more than 4 years ago.

Stick with  families that offer  several varieties and check  Morningstar rating. I  hang with  4 and 5 star funds. 

Have  a long term horizon  with stocks.

Stay alert, something has to give when the  ridiculously low interest rates of today  disappear.  If you have a bond  with  say 2% interest rate  and rates rise to  say 5% you are going to lose a lot of principal until maturity.

Also check WSJ the first week of month  and get list of   winners for last 5 and 10 years. Stick with  proven talent. Ignore the  last month or last year hot shots.

When allocating funds   put high income ones in IRAs and the  high growth no dividend in taxable account.

Like TSs hang up  if someone calls you with a red hot deal. If they have hot stock like Olde Bladder Buster Beer  which is going to double in a month why aren't they buying all they can  and having family, relatives, etc. buying?


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## artringwald (Apr 16, 2013)

When are you going to need the money that you'll be investing? You shouldn't be risking any money you'll need in the next five years. Low interest CD's are about the only choice for short term investments.

If you're looking at longer term investments, you can easily do it yourself using Scott Burns strategy for Couch Potato Investing. The idea is simple. You put equal amounts of money in a variety of index based mutual funds, mixing bonds and equities, domestic and international. If any get higher, you sell some. If any get lower, you buy some. By trying to keep all of them at about the same market value, you are always buying low and selling high. 

When I retired 5 years ago I picked 7 Vanguard funds and have rebalanced when needed. It got scarey when I had to keep selling bond funds and buying more stock funds, but it really paid off when the market came back. It's up 35% from when I started. I still use a fee only FA for advice like the optimal time to start taking social security. 

For a funny, but informative book on investing try: http://www.amazon.com/Only-Investment-Guide-Youll-Ever/dp/0156029634/ref=la_B000AQ26PG_1_1?ie=UTF8&qid=1366139424&sr=1-1


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## Conan (Apr 16, 2013)

The key for me is to lower my expectation of what constitutes a reasonable return.  Currently my retirement projections use a yearly return of 3.5% (barely more than inflation), and even optimistically I only hope to get 5.5%/year in the long run.  

I allocate 42% to stocks (US and foreign), 50% to bonds of various types, and 8% to cash. The bonds are in a ladder that I'll hold to maturity so I won't worry too much about future interest rate changes.  As Art notes above, it's important to rebalance whenever the bonds get ahead of the stocks or vice versa.

If the stocks pay 2% in dividends and the bonds yield 3%, I'm only asking that stock prices average 2.8% of annual capital growth and I'll hit my 3.5% total return.  But to get to 5.5% total return, I need the stock market to gain 7.5%/year.

Proof:
42 * (2% + 2.8%) + 50 * (3%) = 3.5
42 * (2% + 7.5%) + 50 * (3%) = 5.5


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## Kal (Apr 16, 2013)

Conan said:


> ...
> 42 * (2% + 2.8%) + 50 * (3%) = 3.50
> 42 * (2% + 7.5%) + 50 * (3%) = 5.50


 
Interesting arithmetic.


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## DavidnRobin (Apr 16, 2013)

Carolyn said:


> I have found over the years that TUGgers are such smart people. My husband and I are just turning 60 and our home will be paid off in a few months...Yay!! We would like to retire in the next few years, if not sooner. Our dilemma is where to put some of our money with a decent return, no or low fees, and protecting our principal at the same time. My husband loves the stock market but I almost feel as it is just like gambling and at times there is no rhyme or reason in its fluctuation. Do any of you have Financial Advisors...pros and cons? All of our current investments and money are with Schwab. Any insight or website recommendations  would be greatly appreciated.  Thanks!!



Hi Carolyn - Lots of good advice here.  We are in a similar boat as you and a good fee-only FA can be very helpful.  below... is a very general approach for evaluating aspects of retirement...

I am not sure if you have done this yet, but you should look at how much money (per month) you want to retire on (general look), and look at how much money you have spent over the last few years (per month).  There are certain formulas for this, and some expenses will drop while other increase.

Added - I did this recently (macro-perspective) for our expenses - as we have 2 checking accounts and 3 credit cards.  I looked at our last 3 years of year-end summaries for our credit cards (remarkably consistent) and the last few years of checking account (withdrawals, checks, etc.) - also consistent - and it was relatively easy to look at what our average monthy expenses were.  As we save more than we spend (luckily) - we do not really budget - so I had an idea, but wasn't sure. Interestingly, it was almost exactly what I thought it was.

However, for the sake of argument, let's say they are equal and you would like to live on $10K per month, and your expenses have been $10K per month.
{$120K per year}

So... you are golden if you can maintain this amount based off of the interest of your investment alone.  Now... as you have asked and others have inputted, you need to have the interest of your investment cover this - as well as any income you may have Social Security (careful not to depend on this...) and pensions and the like.  Lets say you will depend on SS of $20K per year and a pension of $20K per year - this means that you will need to make $80K (120-20-20) after taxes to maintain the $10K per month lifestyle.

If you can achieve 5% annual return rate on your investment - you will need $1.6MM ($80K/0.05) in investment to retire to maintain $10K per month(again - these are general numbers that do not include multiple aspects of other expenses, income and taxes).  No matter - the better the return on investment the less you will need as an investment (and visa-versa).

So it is of key importance to determine how much you want to retire on - and this is somewhat dictated by what you are currently living on.  These are key numbers to know so you can understand how much interest (and therefore investment types-risk) you will need to have.  A 4% annual interest rate is common goal for many people.

Of course the most difficult and unknown part is how long the two of you will live - and what will you need <80yo and >80yo (for example) as it will likely be different.  This is the BIG unknown.

The investment types will also depend as you get later into retirement (as well as pre-retirement).

The stock market is not a gamble with a conservative approach, but can be affected by macro changes (unavoidable - so one must buffer oneself for the inevitable major downturns). There are plenty of ETFs (e.g. Vanguard) that track dividend paying stocks (I like these better than mutual funds) and have moved pretty well and paying good dividends. There are also ETFs in REITs that pay very good dividends and are at low historic values right now (caveat emptor).  Also REITs that are government backed (with large holdings and high volumes) that are paying over 10%.  These will unlikely last, but in the short/medium term doing very well and their historic window is relatively narrow (again with caveats).

As you are with Schwab - they have advisors that can help you. Of course they have a vested interest, but Schwab has many no-load and low maintanence fees (important) financial instruments, and you can direct them to what type of risk you are willing to handle and therefore investments you can tolerate, but it comes back to how much you have as a nest-egg (and want to live on) as this will be a determining factor.

These are some ideas and suggestions - but do your basics first, and then research, educate yourself, and ask questions.

IMO YMMV
best...


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## Clemson Fan (Apr 16, 2013)

Passepartout said:


> I think you might feel comfortable with a fee-only financial advisor. One who has no personal stake in selling you high 'load' investments designed to pay him/her handsome commissions. You pay these people for the time they put in going over your investment portfolio and giving advice on 'tweaking' it to tailor it for your desired results. This should dovetail well with your 'do it yourself' Schwab account.



That sounds great, but unfortunately many of the top annuity and financial products out there are commission based.  A fee only advisor by definition cannot go over or introduce you to any of these products.  It greatly restricts what you can choose from.  It would be like looking to buy a house, but the only homes you could look at are the ones that are For Sale By Owner.

I've become a big fan of Roccy DeFrancesco and what he talks about and recommends.  He's written several books that are pretty quick and easy reads that you can download for free at www.roccy.org


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## SMHarman (Apr 16, 2013)

Clemson Fan said:


> That sounds great, but unfortunately many of the top annuity and financial products out there are commission based.  A fee only advisor by definition cannot go over or introduce you to any of these products.  It greatly restricts what you can choose from.  It would be like looking to buy a house, but the only homes you could look at are the ones that are For Sale By Owner.
> 
> I've become a big fan of Roccy DeFrancesco and what he talks about and recommends.  He's written several books that are pretty quick and easy reads that you can download for free at www.roccy.org


A fee only advisor should be able to introduce you to those products.  The difference is that at the end they present a bill of hourly rate x hours and then deduct the commissions and you pay (or receive) the difference.


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## geekette (Apr 16, 2013)

Clemson Fan said:


> That sounds great, but unfortunately many of the top annuity and financial products out there are commission based.  A fee only advisor by definition cannot go over or introduce you to any of these products.  It greatly restricts what you can choose from.  It would be like looking to buy a house, but the only homes you could look at are the ones that are For Sale By Owner.
> 
> I've become a big fan of Roccy DeFrancesco and what he talks about and recommends.  He's written several books that are pretty quick and easy reads that you can download for free at www.roccy.org



right here is where I quit skimming:
[from site mentioned in referenced post]
If you were actively in the stock market from 1998-2008 you had a negative rate of return.  Did you know that if you used Retirement Life™ to grow your wealth over this same time frame you would have earned a return of approximately 5.3%? Did you know that there are products out there that will guaranteed you a return of between 6-8% coupled with a guaranteed income for life you can never outlive?
[end copied material]
He is incorrect.  If you were invested in certain stocks over that period you may have had a negative return.  If you reinvested dividends, you made out like a bandit in PLENTY of stocks.  Do your own research vs believe stuff like this.

Such a blanket statement as that is alarming.  Then the guaranteed return of 6-8 % raises my spidey senses and I am out of there.  someone let me know what you think about the ebook as 

ymmv


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## geekette (Apr 16, 2013)

SMHarman said:


> A fee only advisor should be able to introduce you to those products.  The difference is that at the end they present a bill of hourly rate x hours and then deduct the commissions and you pay (or receive) the difference.



Even if the fee-only advisor could not intro you to those wonderful investments, there are plenty of others.

in the original home buying analogy, I think that it is the small set of for sale by owner homes unavailable (private) vs the larger market of public For Sale homes.


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## Passepartout (Apr 16, 2013)

Clemson Fan said:


> That sounds great, but unfortunately many of the top annuity and financial products out there are commission based.  A fee only advisor by definition cannot go over or introduce you to any of these products.  It greatly restricts what you can choose from.  It would be like looking to buy a house, but the only homes you could look at are the ones that are For Sale By Owner.



OK, so getting advice from a fee-only advisor restricts an investor from access to certain high commission investments. But I maintain that using ONLY a full service (commissioned) broker restricts an investor from knowing about appropriate, no-fee or low cost ETFs and Mutuals- and opens them up to the possibility of for commission account churning. This is what happened with my elderly parents until I nipped it in the bud and took over control.

The OP already has a brokerage account, and just needs a little tweaking and guidance, not liquidation and takeover of their existing retirement funds.

Jim


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## pacodemountainside (Apr 16, 2013)

This sounds like TS Developer sales person  BS!.   You only get  all the goodies if you buy  through   me.

There  is  tons of  documentation that   investment  products
that require  paying an  upfront commission are inferior to  no fee and  some have  other fees!.

Sales commissions  do not go for  analysts,  research,  etc.

If one pays  5% up front  sales commission  then investment has to go up  5% plus  high fees to just break   even.


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## Talent312 (Apr 16, 2013)

I self-manage ~$250K... 
As of now, I'm 42% in fixed income and 58% in equities.
"Bonds have less fun," but as one gets older, one doesn't need quite so much fun.

My fixed income investments include:
-- Savings at an online bank.
-- Short-term bond funds.
-- Individual, investment-grade corporate bonds with varying maturities.

My investment in equities include:
-- Well diversified no-load, low-fee MF's, which Morningstar ranks 4-5* with a return/risk
ratio above 1.0, and consistently good performances over 1, 3 & 5 year periods.
-- ETF's with good liquidity & consistent performances, which are highly rated at a few sources.


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## pwrshift (Apr 16, 2013)

For about 15 years I've followed just one investment letter, Intelligence Report, which has been a real winner for me towards retirement.  While the value of some the equities went down during the recession the dividends on his stock recommendations actually increased...and the values recovered over book value really fast.  If you do the buy/sell with a discount online broker you don't have high commissions.  Worked for me.

I have no connection to the letter other than being a long time happy subscriber.  He has a 6 month 100% money back trial subscription rate.

Brian

Interesting reading on his philosophy here:
http://intelligencereport.investorplace.com/about.html

https://order.investorplace.com/index.jsp?sid=IRP601


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## Kal (Apr 16, 2013)

Carolyn said:


> ...where to put some of our money with a decent return, no or low fees, and protecting our principal at the same time...


 
The first question any good investment advisor will question is your "risk tolerance". You need to have a good understanding of how much you are willing to lose.  ....and how much you like to sleep comfortably at night.

Also, what do you consider "a decent return"? In addition, past performance is no indicator of future performance. As examples, look at the Apple stock and anything to do with Gold. We can all remember the hucksters touting gold especially when it was about $1800/oz. It's sad to think how many people got sucked into that scam.


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## MuranoJo (Apr 16, 2013)

Carolyn,

You know how people continuously say, "Gee, I wish I had found TUG earlier"?

Well, that's exactly how I felt when I found the Early Retirement and Financial Independence forum.

Just like TUG, there's a wealth of information there for the searching.  

Best of luck!

(P.S.  Best to start with the FIRE & Money forum.)


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## Clemson Fan (Apr 17, 2013)

SMHarman said:


> A fee only advisor should be able to introduce you to those products.  The difference is that at the end they present a bill of hourly rate x hours and then deduct the commissions and you pay (or receive) the difference.



Again, that sounds good if that actually happens.  However, many major insurance companies sell some good products and annuities that you have no choice but to accept the commission because that's the only way they're sold.  So, instead of dealing with this conundrum fee only advisers just won't look look at any of these products.


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## Clemson Fan (Apr 17, 2013)

Passepartout said:


> OK, so getting advice from a fee-only advisor restricts an investor from access to certain high commission investments. But I maintain that using ONLY a full service (commissioned) broker restricts an investor from knowing about appropriate, no-fee or low cost ETFs and Mutuals- and opens them up to the possibility of for commission account churning. This is what happened with my elderly parents until I nipped it in the bud and took over control.
> 
> The OP already has a brokerage account, and just needs a little tweaking and guidance, not liquidation and takeover of their existing retirement funds.
> 
> Jim



I agree.  That's why I wouldn't want to use either ONLY a commissioned broker or ONLY a fee-only adviser.  The adviser I use is not restricted to one side of the fence.  He charges me a reasonable fee for his monthly service and an hourly rate for any special projects I ask him to do.  He's also introduced me to some very good commission based products and when he does he's very transparent that it's a commission based product and he outlines what his commission from it will be.  Those products are actually only a fraction of my overall portfolio.  Most of what he recommends are actually low cost ETF's.


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## Clemson Fan (Apr 17, 2013)

pacodemountainside said:


> This sounds like TS Developer sales person  BS!.   You only get  all the goodies if you buy  through   me.
> 
> There  is  tons of  documentation that   investment  products
> that require  paying an  upfront commission are inferior to  no fee and  some have  other fees!.
> ...



Roccy hasn't sold me anything and I've never paid him a dime.  In fact, he's given me a lot of free advice and assistance and he's introduced me to some what I feel to be really good independent attorneys and experts in their specific subject matter specific to my needs.  He doesn't sell anything and he's based his livelihood on education and training courses for independent financial advisers.

I actually found him when I was working with another firm that was trying to get me into this Section 79 Life Insurance Plan for my practice.  When they showed me the illustration I was taken aback by the astoundingly high commission and the hidden fees.  That prompted me to do a google search on these plans and Roccy had written a bunch of articles on how bad those products were because of their high fee and commission structure.  I contacted him and he spent hours on the phone and through e-mail with me detailing and going through the math with me on how crappy they are.  Again, he's never charged me a dime and has done right by me!

ETF's are great!  I have a good chunk of change in ETF's.  Roccy is a big proponent of ETF's and low fee products.  However, there are some pretty good annuities and life insurance products that are unfortunately ONLY sold with commissions.  

All I'm saying is that something with a commission doesn't automatically make it bad.


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## Clemson Fan (Apr 17, 2013)

geekette said:


> right here is where I quit skimming:
> [from site mentioned in referenced post]
> If you were actively in the stock market from 1998-2008 you had a negative rate of return.  Did you know that if you used Retirement Life™ to grow your wealth over this same time frame you would have earned a return of approximately 5.3%? Did you know that there are products out there that will guaranteed you a return of between 6-8% coupled with a guaranteed income for life you can never outlive?
> [end copied material]
> ...



For the 10 year period from 1998-2008 the S&P 500 did have a negative rate of return.  On Dec 31, 1998 the S&P 500 closed at 1,229.  On Dec 31, 2008 the S&P closed at 903.  He's not incorrect when talking about the stock market as a whole.  Of course you can find individual stocks that outperform the market as a whole.

Granted, he chose the bottom of the market in 2008 when he made that statement, but he freely admits that in his book and he provides other examples where the market outperforms the Fixed Indexed Annuities and Equity Indexed Universal Life products he talks about.  He goes through the math, both pro and con, in great detail in his book.

You can just read the cover of the book and decide it's not worth reading, but it is a quick read and you know what they say about "judging a book by its cover".


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## Passepartout (Apr 17, 2013)

Careful here Clemmie. You're coming across as a bit of an evangelist. We get it. You like the guy's style.


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## Clemson Fan (Apr 17, 2013)

Carolyn said:


> I have found over the years that TUGgers are such smart people. My husband and I are just turning 60 and our home will be paid off in a few months...Yay!! We would like to retire in the next few years, if not sooner. Our dilemma is where to put some of our money with a decent return, no or low fees, and protecting our principal at the same time. My husband loves the stock market but I almost feel as it is just like gambling and at times there is no rhyme or reason in its fluctuation. Do any of you have Financial Advisors...pros and cons? All of our current investments and money are with Schwab. Any insight or website recommendations  would be greatly appreciated.  Thanks!!



Back to the OP question.  This presentation may be of interest to you.  It's in flash so you need to view it on a computer.

http://www.thewpi.org/Flash.presentations/GIB7/Presentation_Files/index.html


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## Clemson Fan (Apr 17, 2013)

Passepartout said:


> Careful here Clemmie. You're coming across as a bit of an evangelist. We get it. You like the guy's style.



Point taken.  I'm actually a physician and have no financial interest or relationship with Roccy, but he has done right by me!


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## pwrshift (Apr 17, 2013)

In Canada 'registered' investment accounts like our RRSP's grow tax free up to when you start taking the funds out in retirement (then called a RRIF) and that's when the Govt gets its taxes...but they also have a minimum withdrawal requirement where you have to take out an increasing percent annually starting at 4% and increasing to 20% in your 90's, whether you need it or not.  If you don't make it to that age, and don't have a spouse, the remainder is considered your income for the year and taxed at the highest marginal rate (46%).  

I assume the US has similar program for registered retirement plans.  Here is the percent info for Canada:

https://www.woodgundy.cibc.com/wg/r...maturity-options/rrif-minimal-withdrawal.html

It's probably best to keep growing your non-registered plans until your registered plans go down to a level you need more annual funds.

Brian


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## Blues (Apr 17, 2013)

In the US, the minimum required distribution ("MRD") starts at age 70.5, and is calculated based on your life expectancy.  There are several formulas possible, but most people would use Table III in Publication 590:

http://www.irs.gov/pub/irs-pdf/p590.pdf#page=109

To express this as a percentage, calculate:

100 / (Distribution Period) 

for your present age.  For example, at age 70, you have to take 100/27.4 = 3.65%.  It maxes out when you hit age 115 , when you have to take more than 50%.  But overall, US tax law seems a bit more lenient than the Canadian numbers given by pwrshift above.  For example, at age 94, when the Canadians have to take out 20%, in the US that number is 11%.

-Bob


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## artringwald (Apr 17, 2013)

*How to lie with statistics*


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## geekette (Apr 17, 2013)

Clemson Fan said:


> You can just read the cover of the book and decide it's not worth reading, but it is a quick read and you know what they say about "judging a book by its cover".



I read his ANYONE INVESTED LOST MONEY (paraphrase) which tells me that he's not the guy for me.  The cover of the book might be quite pretty, but a blanket statement FROM THE AUTHOR designed to scare and deceive people is where I depart the Rocco train.  Plus, I'm not at Investor 101 level so there was no reason to continue.

This is ok, quite likely plenty of my favored sources are of no use to you.  The important thing is that you found resources to help you, and I've found resources to help me.  OP will come to follow certain sources as well.  

It's all good.


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## Passepartout (Apr 17, 2013)

Blues said:


> In the US, the minimum required distribution ("MRD") starts at age 70.5, and is calculated based on your life expectancy.  There are several formulas possible, but most people would use Table III in Publication 590:
> 
> http://www.irs.gov/pub/irs-pdf/p590.pdf#page=109
> 
> ...



Bob, Thanks for posting this. As I close in on 'MRD" age, I had been a little curious what my 'Gov't mandated additional income' might be. I know I could have asked my accountant, but the above link makes it a simple DIY project.

Jim


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## Carolyn (Apr 18, 2013)

I just wanted to thank everyone for all their ideas and opinions which I will pass on to my husband. TUGgers are the best!!


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## PigsDad (Apr 18, 2013)

Clemson Fan said:


> For the 10 year period from 1998-2008 the S&P 500 did have a negative rate of return.  On Dec 31, 1998 the S&P 500 closed at 1,229.  On Dec 31, 2008 the S&P closed at 903.


When you are looking at a rate of return for a time period, you cannot just compare the index numbers at the beginning and the end.  

The S&P 500 is quoted as a Price Return index, which *does not account for dividends*.  

When you invest in an S&P 500 fund, dividends are reinvested.  That means for that 10 year period, you would have been buying additional shares of the companies in the index with the dividend income.  This article has a good explanation of how the dividends affect total return.  From the article:



> the dividend component was responsible for *44 % of the total return *of the last 80 years of the index








In other words, ignoring the reinvested dividends results in ignoring 44% of your return.  That's why using just stock index numbers to compare to other investments is an apples to oranges comparison.  Not a smart move, and any advisor that tries to use that comparison is either a) stupid, or b) trying to make the investment _they are pushing_ look better.

Kurt


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## pacodemountainside (Apr 18, 2013)

Passepartout said:


> Bob, Thanks for posting this. As I close in on 'MRD" age, I had been a little curious what my 'Gov't mandated additional income' might be. I know I could have asked my accountant, but the above link makes it a simple DIY project.
> 
> Jim



Jim:

You might find the following WSJ article helpful! Interestingly over a  six year period comes in around old bogy of 4%.

http://online.wsj.com/article/SB100...6251994883878.html?KEYWORDS=IRA+distributions


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## MelBay (Apr 18, 2013)

Sorry I'm late to the party!  We went through this same process last fall.



> I think you might feel comfortable with a fee-only financial advisor.



We found our advisor at NAPFA.  She had nothing to sell but her time and advice and wisdom.  Most of her recommendations were for a couple of Vanguard Funds with VERY low fees.  And she helped us rebalance our 401(k)s.  And combed through our budget with a fine tooth comb and gave us lots of $$ saving ideas.

And double-ditto on the Early Retirement forum.  Honestly, I hang out there now more than I do at TUG.  Very friendly, helpful group.  Just be sure to search before you post.  99% of questions have been recently asked and they normally inform you of this fact.  

Good luck.


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## easyrider (Apr 18, 2013)

I like slow and steady. My best investments are real estate rentals. Its not for everyone. Its an investment that uses opm (other peoples money) to purchase then pay for with an end result of steady cash flow.

Bill


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## geekette (Apr 18, 2013)

easyrider said:


> I like slow and steady. My best investments are real estate rentals. Its not for everyone. Its an investment that uses opm (other peoples money) to purchase then pay for with an end result of steady cash flow.
> 
> Bill



Which only works if you can keep it rented.  That's kind of why I steer clear; absolutely not for everyone, especially those not wanting to be landlords (or engage a prop mgmt company in being the landlord for you).

It's interesting to me how many have the mindset that real estate investments of this type aren't risky.  To me, it's riskier than being 99% invested in the stock market.  And a much bigger time/energy hog to own.

I don't buy the 'steady cash flow' aspect as people move (hopefully not trashing the place on the way out), and it could be months before a new tenant is found.

To each his own, and I'm glad that people are making money at it, but not an appropriate investment vehicle for everyone.


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## easyrider (Apr 18, 2013)

""It's interesting to me how many have the mindset that real estate investments of this type aren't risky. To me, it's riskier than being 99% invested in the stock market. And a much bigger time/energy hog to own. ""

There are risks and there is a learning curve just like anything worth while. The one thing that separates real estate income investments from other real estate investments is that its not a flip, your in it for the long run. 

Just like you buying dividend producing stocks to increase your earnings, income properties create income ( rent and appreciation ) over the years. After 15 or less years or so it becomes steady cash flow with appreciation and becomes a paid for asset adding to your net worth. Then there is the yearly tax write off and the fact that your using other peoples money ( opm) to purchase most of the asset its hard to beat, imo. 

No one allows you to borrow 250K to buy stocks. In the past the banks would lend on real estate investments but its been a bit harder lately with conditions being  50% or more down, excellent credit report and 40 pages of who really knows.

Right now multi family and condos look good to me. I like the 55 year old and above senior condos if you can buy and sell it on contract. 

Bill


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## MelBay (Apr 18, 2013)

> It's interesting to me how many have the mindset that real estate investments of this type aren't risky. To me, it's riskier than being 99% invested in the stock market. And a much bigger time/energy hog to own.
> 
> I don't buy the 'steady cash flow' aspect as people move (hopefully not trashing the place on the way out), and it could be months before a new tenant is found.



Geekette, I inherited real estate, and I couldn't agree more.  I lost about 75% on several of the houses, just to get out from underneath this time/energy hog.  If you love your children, you won't leave them real estate.  I admire those who make a go of it.  It is NOT for me, I have learned the hard way.


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## Clemson Fan (Apr 18, 2013)

geekette said:


> That is really how one loses money in the stock market, not price swings, although the most common way to lose money in the stock market is to buy high and sell low To Lock In A Loss.   When people say they lost money in the stock market, it is usually because their fear or emotion caused them to make that kind of mistake. While my account balances have gone up and down, I have never lost money in the stock market because I have not sold for less than I paid.



Wow, now there's a statement that would make my spidey sense crawl.  You've never "lost" money in the stock market because you never sell a stock you own if it goes down?  So you never count loses if they're just on "paper" and you still maintain that position in the stock?  Interesting accounting. 

If I had an adviser that made that statement to me I would run the other way.


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## Clemson Fan (Apr 18, 2013)

PigsDad said:


> When you are looking at a rate of return for a time period, you cannot just compare the index numbers at the beginning and the end.
> 
> The S&P 500 is quoted as a Price Return index, which *does not account for dividends*.
> 
> ...



Good post.  I just put the S&P 500 index for that time period to show that it did indeed go down over the 10 year period from 1998-2008.  Granted that is overly simplistic and that timeframe from 1998-2008 is probably the worst performing 10 year period for the S&P 500 which skews the argument more, but it does show that it can happen.  If you're elderly and heavily invested in the stock market and it has a significant downturn you may not have the luxury of time to wait for it to recover.

I do believe strongly in the compounding power of re-investing dividends and I do do that myself for my investments that have dividends.  However, even if you do re-invest the dividends, you still need to figure in the tax that you need to pay on those dividends when calculating your overall rate of return unless of course the investment is in a tax deferred vehicle like a IRA or 401(k) or annuity or universal life insurance product.  The tax hit on dividends is often overlooked.


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## x3 skier (Apr 18, 2013)

Speaking of RMD, I was stunned to note that after recently calculating what would happen after 6 months of RMD from my retirement accounts using the IRS tables, I would have more money in my accounts than when RMD started. Gadzooks! If only this holds true when it actually is required, I will be a happy camper.

Of course, past performance is no guarantee of future results. 

Cheers


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## spirits (Apr 18, 2013)

Carolyn,

You know how people continuously say, "Gee, I wish I had found TUG earlier"?

Well, that's exactly how I felt when I found the Early Retirement and Financial Independence forum.

Just like TUG, there's a wealth of information there for the searching.

Best of luck!

(P.S. Best to start with the FIRE & Money forum.) 
Originally posted by Murano.
I too will recommend Early Retirement and financial Independence forum.
Although I am Canadian and some of the advice does not pertain north of the 49th parallel, I find the people who take the time to post just as thoughtful and articulate as those here on TUG.  Another site I have bookmarked to look at daily.


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## spirits (Apr 18, 2013)

*A rising market since the 50's*

I wonder, if I had a crystal ball what this chart would look like in 40 years.
The upward growth of the economy was a nice incline for 50 years but since 2000 has had two major downturns. Unprecidented.
And that is the $64000 question.....and why my husband and I are prepared to live on potatoes, carrots and turnips if the economy crashes
We have been joking about this all our married life (over 30 years) and have not resorted to tearing up the front yard yet.....but we are prepared to do so.
My parents lost everything in world war ll, came to Canada and started over with nothing more than the clothes on their back. My husband's parents did the same.  I look at what they accomplished and thank my lucky stars that the only worry I have had so far is no more serious than what to make for supper tomorrow. 
My troubles pale against what they lived through...I believe we are more resourceful than we think.  I just hope we are not put to the test.


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## MichaelColey (Apr 18, 2013)

Clemson Fan said:


> Good post.  I just put the S&P 500 index for that time period to show that it did indeed go down over the 10 year period from 1998-2008.  Granted that is overly simplistic and that timeframe from 1998-2008 is probably the worst performing 10 year period for the S&P 500 which skews the argument more, but it does show that it can happen.  If you're elderly and heavily invested in the stock market and it has a significant downturn you may not have the luxury of time to wait for it to recover.


For the longest time, people were able to say that there had never been a 10 year period when the S&P 500 declined.  Now there is one (although did it decline when you factor in dividends?).  But it still remains one of the best long-term investments.

If you invested $10k in a fund that mirrored the S&P 500, 50 years ago, then sold it ALL at the very bottom of the crash in 2008, you would have a FORTUNE.

If you earned minimum wage your entire life and invested 10% in the S&P 500 each month or year, you would be a millionaire when you hit 65.

I've been investing in my IRA (and 401k before that) for a while now.  With a SEP IRA, I can put a LOT of money in.  But it's already reached the point where most years the growth from appreciation and dividends is more than what I put in.


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## PigsDad (Apr 19, 2013)

spirits said:


> The upward growth of the economy was a nice incline for 50 years but since 2000 has had two major downturns. Unprecidented.



I wouldn't say unprecedented.  Take a look at the chart again and look at the 70's.  Two very similar downturns compared to the 2000's.  (They may look smaller, but remember this is a logarithmic chart -- look at the relative drops).

Simply looking at that, if history repeats itself we are in for a fantastic run-up.

Kurt


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## bogey21 (Apr 19, 2013)

If I were to invest logically I would put half in a fixed annuity to guaranty a flow of income and half into gold to hedge against inflation.  12 years ago I did the fixed annuity piece but put the other half into race horses because I like the action.  Seriously, the fixed annuity half plus my Social Security has served me well.  The race horses have been fun.

George


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## geekette (Apr 19, 2013)

Clemson Fan said:


> Wow, now there's a statement that would make my spidey sense crawl.  You've never "lost" money in the stock market because you never sell a stock you own if it goes down?  So you never count loses if they're just on "paper" and you still maintain that position in the stock?  Interesting accounting.
> 
> If I had an adviser that made that statement to me I would run the other way.



Absolutely.  Where is the accounting problem?

If I bought 50 sh @ $50/sh I still have 50 sh whether the price per is $10 or $100.  I don't lose sleep over Current Value because I'm not looking to sell for a long time.  There is no accounting problem, it's simply Number Of Shares that will have a different value all through today than they did all through Monday.  That is the nature of the stock market - it is Dynamic and generally has little to do with the actual company that I am invested in.

I can lose money selling at $10 but since I always buy intending to be long, what's the problem with not selling for years, maybe when it hits $100?

Sure, I have account balances that swing due to current price valuation but so what?  I hear people talk about how they lost so much money in their retirement plans and so forth, but when prices are low and I still have money going in (either via paycheck deduct or reinvested divs), it's a buying opportunity, not a SKY IS FALLING -- SELL IT ALL moment for me.

Who doesn't love a bargain???  I just won't sell at garage sale prices because I don't need that money yet.  For the next 20 years or more, I can wait for prices to rise before selling.  Of course, I am not a speculator, I am not a trader, I am a buy and hold dividend / dividend growth investor.   

I'd be happy to show your accountant my books, which will show 4 payments per year per stock for the past however many years I've held the stock.  Some of those payments will be at high prices and some will be at low prices, but I always get more shares out of it, just a matter of how large my free take is that quarter.

Where is the accounting problem?


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## geekette (Apr 19, 2013)

Clemson Fan said:


> The tax hit on dividends is often overlooked.


Because it is mostly inconsequential compared to tax hit on capital gains on a sale.  The hike to div taxation is very new, they've been a sleeper bargain for a very long time.


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## PigsDad (Apr 19, 2013)

Clemson Fan said:


> The tax hit on dividends is often overlooked.



Agreed, and that's why we try to have most of our income producing stocks and funds in our 401k or IRA.  The little bit that we "play" with the market on growth stocks is in an outside brokerage account, which tends to produce little income but more in realized capital gains (or losses! ), which are of course taxed at a lower rate.

We're still well in our accumulation phase, with retirement being at least 10, probably 15 years away.  As we approach retirement, I'm sure we will start switching into some more conservative investments, but I think a large portion will always be in the stock market.

Kurt


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## Tia (Apr 21, 2013)

http://www.denverpost.com/allewis

Interesting investment story worth reading


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## Carolyn (Apr 21, 2013)

Wow...that's really scary! Thanks for sharing.


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## x3 skier (Apr 21, 2013)

Tia said:


> http://www.denverpost.com/allewis
> 
> Interesting investment story worth reading



If something sounds to good to be true.............

Cheers


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## Tia (Apr 21, 2013)

x3 skier said:


> If something sounds to good to be true.............
> 
> Cheers



Well it fooled a very educated person so what chance does the average person have....


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## vckempson (Apr 22, 2013)

Find and interview several planners who are Certified Financial Planners and Registered Investment Advisors.  Those two items require a fiduciary obligation to their clients.  Go with the one you're most comfortable with.  

Most of these planners will walk the line between commissions and fees, doing that which is in your best interest.  That's what having a legally binding fiduciary obligation is all about... doing what's in the best interest of the client.

BTW, being fee based means different things to different people.  However, it usually entails charging an management fee based on assets under management for the non-commission part of the investments.  This is commonly between  0.75% to 1.5% a year.  Any hourly rate typically applies for unusual one time projects.  

I am somewhat biased here, being a CFP and a Registerd Investment Advisor myself.


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## Elan (Apr 22, 2013)

vckempson said:


> Find and interview several planners who are Certified Financial Planners and Registered Investment Advisors.  Those two items require a fiduciary obligation to their clients.  Go with the one you're most comfortable with.
> 
> Most of these planners will walk the line between commissions and fees, doing that which is in your best interest.  That's what having a legally binding fiduciary obligation is all about... doing what's in the best interest of the client.
> 
> ...


 
  So what's the typical hourly rate for investment advice only (no assets under management)?


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## vckempson (Apr 22, 2013)

Elan said:


> So what's the typical hourly rate for investment advice only (no assets under management)?



For a CFP/RIA, you're probably looking at somewhere between $150 to $200 an hour.  Most advisors do a lot of work for free if it's for client's that have assets managed by them.


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## Elan (Apr 22, 2013)

vckempson said:


> For a CFP/RIA, you're probably looking at somewhere between $150 to $200 an hour.  Most advisors do a lot of work for free if it's for client's that have assets managed by them.



  Thanks for the info.


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## Tia (Apr 23, 2013)

http://finance.yahoo.com/blogs/dail...mble-fees-killing-savings-155036217.html?vp=1

talks about fees that cost people hard earned $


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## geekette (Apr 24, 2013)

Tia said:


> http://finance.yahoo.com/blogs/dail...mble-fees-killing-savings-155036217.html?vp=1
> 
> talks about fees that cost people hard earned $



PBS has a program airing about this very thing, and how the mutual fund industry is set up to gain rewards for itself on the backs of 401k savers.


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## DavidnRobin (Apr 24, 2013)

MelBay said:


> And double-ditto on the Early Retirement forum.  Honestly, I hang out there now more than I do at TUG.  Very friendly, helpful group.  Just be sure to search before you post.  99% of questions have been recently asked and they normally inform you of this fact.



Triple Ditto! Thanks for the reference to this Early Retirement (ER, FIRE) forum - sort of like TUG (diverse opinions/viewpoints), but for those interested in ER (like me...)

Make sure you use the FIRECalc
http://firecalc.com/

A great tool that let's the user quickly input a series of values, parameters and variables - and test them.  Much better than the one I have used on Fidelity.  FireCalc calculates the probablity under multiple scenerios of running out of money before you die using historic trends over the last 100+ years.

What was amazing to me is how much investment portfolio management costs affect the results.  There is even a tool that tests a scale of these costs. This especially useful as planning tool as a DIY Investor.


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