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Joe Eqcome is the pen name of Robert A. Frank, CFA, a Wall Street executive who has spent over 30 years as an investment professional. Mr. Frank is the founder of GrowthIncome Research & Management, LLC. GrowthIncome Research & Management, LLC’s business mission is focused on generating... More
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  • Putting Annuities In Their Place: Fidelity Personal Retirement Annuity®

    The prime candidate for an annuity is often someone more concerned about losing money than making it.

    Security of an Annuity: The security of receiving fixed income during retirement and having a vehicle to protect current assets is often all it takes to sell somebody an annuity. However, it is advised that one take a closer look at the many different types of annuities and their often overlooked potential caveats before signing on the dotted line.

    Annuity is Insurance: As with any insurance product, an annuity is only as good as the insurance company's ability to make good on the contract. If an insurance company were to go insolvent, as Executive Life Insurance Company and 62 others did in 1991, policy holders would lose big time. In addition, the only protection provided to customers of failed insurers is state-mandated, industry-funded guarantee funds that have maximums set by each state. Under this scenario, it is unlikely that a policy holder would receive the full amount of what they are owed.

    Landscape Changing: Buyers of annuities need to be aware that the industry is changing. Several insurers backed by investment firms are pushing into indexed annuities-without the annuity salesmen. Just last year fixed-indexed-annuity sales totaled a record $33.9 billion-according to insurance research group. The sales represented nearly 50% of all fixed-annuity sales, which is up from about 15% a decade ago.

    Fidelity Personal Retirement Annuity®: This annuity can be classified as a deferred variable annuity because contributed funds are withdrawn at a later date specified by the contract and return rates can vary based on the investment holdings in the portfolio.

    Unlike many variable annuities however, the Fidelity Personal Retirement Annuity® has no guaranteed minimum return. Funds contributed by policy holders are invested in a select group of funds (59 at the time of writing) selected by the policy holder whose performance determines the rate of return. A strong selling point for this annuity is the ability for tax-deferred growth, similar to a 401K. This means that taxes aren't paid until funds are withdrawn.

    For Comparison's Sake: Let's look at how the above mentioned annuity compared to a typical taxable investment account (both 36.8%). This example makes the following assumptions:

    1. Initial tax-deferred investment of $250,000;
    2. 6.0% annual rate of return;
    3. No return on initial tax-deferred appreciation or losses;
    4. 0.25% annual fee for the annuity;
    5. All income (after taxes and/or fees) is reinvested;
    6. 36.8% tax rate (33% ordinary income tax and 3.8% Medicare surtax);
    7. Fund and transaction fees on your taxable investment account or the annuity contracts and will depend on your tax rates (36.8% or 15.0%).

    Chart 1: Chart 1 shows how the Fidelity Annuity outperforms a taxable investment account at a 36.8% rate.

    (click to enlarge)

    However, liquidating the account all at once could put the policy holder into a higher tax bracket. For this situation, the tax imposed would come to 43.4% (39.6% ordinary taxes and 3.8% Medicare surtax) amounting in a final value of $540,150.

    To avoid this, Fidelity Annuity would need to be liquidated over the course of several years (or "annuitized"), which would lengthen the deferral period to which you receive the tax rate of 36.8%.

    Twenty-Years: In addition, Chart 1 shows us that the annuity is doesn't really make any sizeable impact until the 10th year of accumulation. Clearly this annuity is a long-term investment that should only be considered for such circumstances.

    Dividend Appeal of Taxable Investments: As we have seen, annuities are a way to secure a future income stream for when you really need it. However, there are other methods of supplementing your income which can provide better tax qualifications.

    Investing in taxable dividend funds can provide you with income that will be taxed at the Qualified Dividend Rate of 15.0% (not 36.8%). This method can boost your investment return by a significant amount.

    Chart 2 shows the results of investing the same $250,000 into a dividend allocated taxable investment account. This method will produce an extra $100,000 at the end of the 20 year annuity time frame.

    (click to enlarge)

    Early Withdrawal Penalties: If you are younger than 59 ½ and withdraw money from you annuity, you will be accountable for:

    1. A 10% penalty (twenty-five percent of recipients of annuity are likely to withdraw early);

    2. Ordinary income taxes from the Federal government on your withdrawal;

    3. Medicare surtax;

    4. State and local taxes (California is 1%);

    5. Penalty withdrawal by the annuity company.

    You are not allowed to deduct ordinary losses (stock, bonds, real estate, etc.) from these penalties.

    Types of Annuities:

    1. Immediate Annuity: These products provide to policy holder with an immediate steady stream of income for a specified period of time or for as long as the policy holder is alive (annuity payments are forfeit to the insurance company). Because these products start making payments to the policy holder immediately, they are often used by those already in retirement.

    2. Deferred Annuity: With these products, the policy holder pays the insurance company a lump sum (or installments) that will be paid back to the policy holder with interest at a later date specified in the policy. These policies can also include an income component that will provide regular payments to the policy holder for the rest of their life or for a specified period of time.

    3. Fixed Annuity: These provide the policy holder with a guaranteed fixed interest rate (return rate) and can either be immediate or deferred policies.

    4. Variable Annuity: These products provide the policy holder with a guaranteed minimum interest rate (return rate) plus exposure to various investment products. The money provided by the policy holder is invested into mutual funds, stocks, bonds and other investment vehicles that can provide added return. Although the account value can fluctuate with market conditions, the policy holder may or may not be the guaranteed to receive the minimum interest rate regardless of the policy holder's account value at the end of the accumulation phase. However, variable annuities are often subject to high management fees.

    5. Indexed Annuity: This is a special class of annuities that determines the policy holder's return on an equity-based index such as the S&P 500. The majority of these annuities have a guaranteed minimum return to protect the policy holder in case the index on which the annuity is based performs poorly. In contract, these annuities will also have a maximum cap that protects the insurance company in case the index performs extraordinarily well. The management fees on these types of accounts also tend to be high and will eat away at the policy holder's return.

    6. The Hybrid Annuity: This is essentially the same as an Indexed Annuity except the policy holder has control over the investment selections.

    When All is Said and Done: Annuities can be a good way to secure a future income stream if you have a significant amount of time before that income is needed. However, sorting through the various annuities available can be a headache, especially when many of them have high fees that aren't readily disclosed. However, often the fear of uncertain future income is enough to start overpaying for your own money.

    Joe Eqcome


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: retirement
    Aug 29 7:57 AM | Link | Comment!
  • Joe Eqcome's GrowthIncome Research & Management Website

    Dear Friends and Joe Eqcome Followers,

    Today is the day! Joe Eqcome's GrowthIncome Research & Management, LLC. website is finally ready for the public and we are giving you the first look.

    Over The Past Year: The GrowthIncome team has been working hard to produce a website that will serve as a definitive source for all things related to retirement: Medicare, Social Security, Health Care, Investment Planning, Estate Planning, Benefit Plans, etc… We know that planning for retirement can be very difficult and complicated due to its many moving parts so we have created this website to demystify the process and bring people to a happier, healthier, and more rewarding retirement.

    A Pathway: We have plotted a pathway that we call the "Retirement Steps" (see image below). This pathway organizes retirement into an easy to understand modular application, much like a game board, that isolates each of retirement's component parts while at the same time drawing connections and showing how each part fits together to produce a successful retirement plan.

    The Journey: At the beginning of the journey we walk through a series of reflective applications that encourages us to consider our Family Goals, Investment Goals, and Retirement Goals for the purpose of taking inventory on where we are and where we want to be.

    Next we get a full view of our Financial Plan with the "GrowthIncome's Proprietary Retirement and Financial Model". This application shows us what we can expect from our assets through retirement at our current income and expense levels. We then move on to various topics including Estate Planning, Investments, Benefit Plans, Social Security and Medicare, each of which is essential to study and consider when putting together a retirement plan.

    But Wait, There's More: We have created an online version of our proprietary "GrowthIncome Database" that tracks over 2000 securities in the CEF, ETF and, what we call, "Dividend Aristocrat" sectors. We update it each day.

    The database allows you to track over 30 metrics such as price, NAV, volume, market cap, yield, beta, distribution data (including declaration date, ex date, pay date, amount and distribution sources) and many others for each security that we follow.

    You can create watch lists, search by sector, view and interact with our "Investment Heat Map" (see image blow) that includes over 50 investment categories, and sort data so that you can see exactly what you are looking for. The website also offers a "Dividend Mailings Program" that sends distribution announcement data of pre ex-date CEFs directly to your inbox in an easy to read table.

    The Research: We have also incorporated an online research segment into the website where you can find all of the "GrowthIncome Research" from categories covering CEFs, ETFs, retirement, health care, dividends, the general economy and much more.

    Investments: GrowthIncome also manages its series of "Model Portfolios" that have been created to suit a wide variety of investment risk levels. These five portfolios (Conservative, Income, Balance, Growth and Aggressive Growth) each offer an appropriate balance of growth and income (total return) for each investment style. Additionally, we have provided dividend reports (separate reports) on CEFs for both the industry model and municipal bonds.

    Investment Management: As a registered investment advisor along with 37 years of investment experience, we at GrowthIncome are dedicated to providing our clients with exceptional personally tailored service. Those that invest with us have their assets held with an independent third party custodian (TDAmeritrade) that provides personal access as well as professional management by GrowthIncome. This allows us to focus on what is important, our clients, while the third party custodian handles investment transactions, statement preparation and other compliance duties.

    Sign-Up: We are excited to be offering you this first look at the brand new website and we hope that you find it useful and informative. We welcome you to sign up for a free trial account that will provide you with 7 days of full access to view the site. Rest assured that you will not be charged once this initial trial period is over. However, your account will automatically convert to a limited access account at that point.

    To see what all the fuss is about please visit us at We look forward to seeing you online!

    Joe Eqcome and the GrowthIncome Team.

    Aug 07 4:10 PM | Link | Comment!
  • CEFs Week Of 6/28/13: Cohen & Steers Infrastructure Fund

    Note to editor:

    I have taken a lot of trouble to bring to you this CEF report on a weekly basis.

    The time that goes into this report in enormous.

    Not to get it out for you for the "opening" is a sin.

    The "editor" questions this report for two aspects of a sentence:

    "Since the 2008 bond fund have lured net investor inflow of $1.26 trillion." I'm sure that is "$1.26 trillion has be taken out of bond funds". Period!

    Also, "The funds were a Return of Capital ("ROC" on $0.1301 for the two month of 2012........." This is a CEF story line.


    Joe Eqcome

    Actionable Items:

    Highest Positive Spread: Cornerstone Progressive Return Fund (NYSEMKT:CFP)

    Focus Stock: Cohen & Steers Infrastructure Fund (NYSE:UTF)

    Last Week's Focus Stock: Cornerstone Progressive Return Fund

    GDP Declined: The nation's gross domestic product (NYSE:GDP) grew at a 1.8% annual rate from January through March. That was less than the earlier estimate of a 2.4% growth rate.

    Consumer Consumption: Slower consumer consumption eased from 2.6% to an estimate of 3.4%. (Consumer consumption accounts for 70% of the U.S. economy). An increase in the 2014's tax-rates, the static net income growth, the effect on the damage to savings and the loss of government spending will likely impact growth.

    Federal spending declined at 8.7% annual pace (not including Social Security) during the first quarter. Spending at the state and local level fell at a 2.1% pace.

    Fed: The GDP weaken the growth rate and will likely place the Fed's $85 billion buying programs in tow. Treasuries 10-year bond prices rose to 2.5%. Bond fund have lost an average of 2.7% though the end of June and they suffered a net outflow of $23.7 billion this month. (At the height of the 2008 financial crises bond outflows were $44.5 billion monthly.)

    Since the 2008 bonds fund have lured net investor inflows of $1.26 trillion. There is a way to unwind this massive inflow into bonds. You can certainly buy bonds for a "slow drain".

    ETF's % Change Week-to-Week: Bonds (+3.3%) Financial (+2.7%) and Real Estate (+2.5%) were the leaders this week over the previous week. Commodities(-1.3%), Foreign (-0.7%) and AssetAlloc (-0.6%) were laggards for the week. Both gold (NYSEARCA:GLD) and copper (NYSEARCA:JJC) were negative -4.7% and -1.4%, respectively. (See "Chart 1")

    Real Estate was "dead last" the week before (-5.5%) and was number "3" this week. AssetAlloc was first last week (+1.9) and third from the bottom this week (-0.6%). Bonds were an average last week (-3.2%) and first this week. Some of the big banks were treated by raising the loan loss reserves from 3% to a potential 6%.

    (click to enlarge)

    CEF Weekly Fund Type Performance: This week saw price rises forSpecEqFnds (+3.7%), PrefStkFnds (+3.6%) and SingleStMuniFnds (+2.7%). The laggards were InvGrdBndFnds (+1.2), ConvtSecFnds (+1.2%) andUSMrtgBndFnds (+1.5%). All of the PrcNAVSprds were positive. Some of the SpecEqFnds were "real estate" related.

    (click to enlarge)

    Highest Spread and Stock for the Week: Cornerstone Progressive Return Fund , our "Focus" Stock for last week, have a positive share price of +10.9% and a negative NAV of 1.9%, respectively. The PrcNAVSprd was +9.0% (A positive number may mean a future decline in share price).

    CFP is suspending its "Rights Offering" (Monday the 24th) until further notice due to the CFP's net asset value having declined more than 10% from $4.74 on May 17, 2013 (the effective date of the Fund's registration statement) to $4.24 on June 21, 2013. All subscriptions and payments received by the CFP will be returned to subscribing shareholders.

    However the stock price per share was $14.96 in 2007 and $5.00 in 2012 (despite three rights offering). While logic tells us that there will be another rights offering, CFP's shares can't generate that return (annual yield of 17.7%) and must go back to the markets for capital. The premium is 34.0% of the price to NAV.

    Having "gone on" about this scheme, the block traders will raise this stock-up to block the stock from cratering. It's like clockwork.

    Lowest Spread and Focus Stock for the Week: Cohen & Steers Infrastructure Fund was our "Focus" Stock of the Week. UTF share price was positive +1.6% and its NAV per share was a plus +3.0%. Its PrcNAVSprd decline was -1.4%. (Stock prices typically go up.)

    While quarterly distributions were offered on 6/18/2013 of $0.36 per share, the annualized quarterly distribution yield was 7.6%. The funds were Return of Capital ("ROC") on $0.1301 for the two month period of 2012, the ROC for 2013 was $0.2312 for the March and June quarter of 2013. Several holdings were of a return of capital nature for its portfolio.

    The net assets were $2.6 billion and the leverage was $800 million (31.1% of assets). Total debt will likely bring the debt levels higher as rates will rise. The discount is 10.8% of stock to NAV. The 52 week high is 12.5%.

    Focus Stock & High Price for Last Week: Last week's "Focus Stock" for the week was Cornerstone Progressive Return Fund . CFP is suspending its "Rights Offering" until further notice. All subscriptions and payments received by the CFP will be returned to subscribing shareholders. CFP's stock for the week was at 11.4%.

    The Highest Spread stock for the week was Gabelli Convertible & Income (NYSE:GCV)(share prices to go down) which was off a negative -0.6% for the week (-3.9% on Monday).

    Joe Eqcome

    Jun 30 9:50 AM | Link | Comment!
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