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BruceCM

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  • Retirees, Beware The Variable Annuity 2.0 [View article]
    HRE II
    I assume you're not an insurance troll and are genuinely interested in knowing if this new product is worth consideration....

    Go back up a few posts and read my response. The answer to your question is it is not possible for the insurance company to provide a better risk-adjusted return than the markets. The insurance industry are the grand masters of deception, which for insurance products involves 'guarantees', 'protection' and "to-good-to-be-true" promises. They do this with regularity, as new fantastic products are simply a slicing-and-dicing of what they've already offered.

    I know many sophisticated investors...and not one of them would ever buy one of these products. They are designed for and aimed at the unsophisticated who are looking for easy answers....and there must be many, as insurers tend to be profitable.

    BruceM
    May 25 02:04 PM | 1 Like Like |Link to Comment
  • Retirees, Beware The Variable Annuity 2.0 [View article]
    Capitolp
    My point isn't so much what you should or shouldn't be in right now...its that you could have invested that original $33K in just about any index and gotten a better return than the VA.

    What I'd recommend for current allocation is a diversified holding of vanguard index funds. Google to the Bogelhead's Guide to Investing.

    BruceM
    May 25 11:59 AM | 1 Like Like |Link to Comment
  • Retirees, Beware The Variable Annuity 2.0 [View article]
    WDC1
    Yours is a question worthy of a thoughtful answer.
    But first some basics....there are three laws of the securities marketplace:
    1. No one can predict the movement of future markets except by random chance.
    2. We all invest in the same marketplace
    3. Only the US Treasury can print money

    With this in mind, how can an insurer, mutual fund, investment manager or anyone else....provide a return, over time, that beats market averages? Answer: by chance

    Next question: how can an insurance company take the dollars you give them to invest, pay the salesman at the front end, pay the insurance company cost of infrastructure middlemen, the mortality expense, account fees and make a profit for the company...and outperform the same mix of a stock/bond ETF at Vanguard you could have put the dollars into instead of the insurance company? Answer: they can't. That 'guaranteed minimum return' is paid for from the caps put on the VA's investment return...remember the 3rd law (above), that money has to come from somewhere, and that somewhere is you, not some magic account with the insurer.

    BruceM
    May 24 04:58 PM | 2 Likes Like |Link to Comment
  • Retirees, Beware The Variable Annuity 2.0 [View article]
    capitolp
    Had she put that same $33K in SPY on this date in May 09, today she'd have $76,876 with dividends reinvested. Here are some other indexes she could have gone to over the same time period:

    VIG (Vanguard Dividend Appreciation ETF): $71,963

    IJR (IShares small cap index): $87,300

    VNQ (Vanguard REIT index): $95,683

    BruceM
    May 24 04:28 PM | 1 Like Like |Link to Comment
  • An Alternative Design For A Retirement Income Portfolio [View article]
    DS
    You sound like my reflection. About the same age....I also have a pension...haven't started SS yet though. And portfolios have many of the same names! A couple of thoughts...since you were so kind to ask :-)

    I don't see any preferred stock. Although priced at the lowest yields I think I've ever seen, there are some reasonable 7% REIT preferreds out there that will likely never be redeemed, where your single greatest risk will be inflation. Of the 62 income securities I currently hold, about 16 are preferreds. I take from them the 5% I require for household income today, and bank the rest to be used in 10 years or so, when my income requirement will rise over their yield on cost.

    Do I see a BDC? Whew! And an ETN? Youch!

    I would suggest an added column to your list of income securities, on common dividend/Net OpCF payout ratio. If an income investor could only use one metric to predict future dividend growth, this would be it....and its very easy to access and calculate this ratio.

    Nice list!!

    BruceM
    May 24 01:41 PM | Likes Like |Link to Comment
  • Why Most Dividend Investors Never Succeed [View article]
    David at Imperial

    Agree completely. A couple of recent stocks as examples of this point....Amerisource Bergen (ABC) and Republic Services (RSG). When I bought them many moons ago, they were yielding around 4%. Dividend growth has been great as has dividend coverage and the growth of free cash flow. Well, the market must see growth in these company's futures, as their yields have dropped to 1.3% and 2.9%, respectively. So its out to the marketplace to find a couple of 4% yielding replacements. Bottom line: I found em' and after tax and transaction cost, I was able to boost household income by about 4% while keeping the income portfolio within the income risk limits I've set for it. Not a huge amount of household income increase....but it helps.

    BruceM
    May 24 01:07 PM | 1 Like Like |Link to Comment
  • Explaining Year-To-Date Health Care REIT Returns [View article]
    Bob
    Great collective info. Good to see it all in one place!

    As an addition to what you've provided...for those of us who hold the HC REITs for reliable long term income, where the change in the price of the security really doesn't matter, here are a few additional points of data for the past 12 months...

    Div to Net %Rtn on
    OPCF POR Inv Cap
    HCN 93% 2.6%
    HCP 83% 7.3%
    VTR 66% 4.4%
    NHI 80% 8.2%
    LTC 79% 12.2%

    It would seem from this that HCN is having the toughest time, as its past 3 year $11.6B investments are not really producing much new top line revenue, thus most of its CapEx is being funded through debt and new stock....which is more expensive to the REIT than retained OpCF. Hopefully for HCN shareholders, its recent 3 year investments will start to pay off in higher revenues and Op CF...else it will have a tough time supporting its already stressed dividend.

    The real attraction...at least to me...of the HC REITs have been their ability to sustain cash flows during economic downturn. This is good, but I don't know what effect, if any, the mandated ACA coverage will have. One other potentially useful metric is what % of operator's revenue comes from Medicare + Medicaid, thus would be at risk to any changes in gov. payment policies.

    BruceM
    May 24 11:59 AM | 1 Like Like |Link to Comment
  • The Latest Thinking On Best Practices In Retirement Planning [View article]
    Fred
    You can get a life annuity in virtually an unlimited number of flavors....annual inflation adjustment is just one. But variable rate, residual value (death benefit), periodic withdrawals, survivorship, period certains (periods where the payments will continue even if the annuitant dies), liquidation option, and so on and so on. Its all time value of money. But in every case, you can be assured of two things:

    1. You'll pay for any feature offered. The insurance company will not give it to you for free because they like you, and

    2. The risks any of the features provides will be transferred to you. You will probably not know this, but the insurer will, and the insurer has no intention of carrying risks such as inflation, market risk, interest rate risk or default risk.

    Insurance products offer convenience and ease of use. But like anything else, you'll pay for it....its just that most purchasers of insurance products do not know what they are paying. Its how insurance companies stay in business and why they are so profitable.

    BruceM
    May 23 09:37 AM | Likes Like |Link to Comment
  • Realty Income Corp. Dividend Stock Analysis [View article]
    "Cheese: You might try reading other analysts' articles for a "reasoned counterdiscussion" (sic). Just a thought."

    Ok...lets take a look....

    5 year dividend growth rate: 5.5%
    10 year dividend growth rate: 6.3%

    Dividend to Net OpCF payout ratio: 2010: 85% 2011: 82% 2012: 85%. 2013: 87%
    Percent of Net OpCF paid in interest: 2012: 38%, 2013: 35%
    Percent of Investments paid with (Net OpCF - Dividends): 2012: 5%, 2013: 5%

    3 year average annual revenue growth on investment expense: 3.6%

    Analysis:
    Realty Income has a high but acceptable coverage of its dividend by Net OpCF and revenue growth as a percent of investment expense is again on the low side for an equity REIT, but is acceptable. But with only 5% of its capital coming from retained cash flow, its cost of capital is high...and interest expense representing 35 to 38% of its Net OpCF reflects this...and it is high.

    With this much interest expense, Realty Income is sensitive to increases in interest rates in the years ahead.

    As Income Risk goes, Realty Income is sensitive to both interest rates and occupancy rates (sales)...but it has always been this way. It handled the 2008/09 economic decline with absolute aplomb...one of the very few retail equity REITs that did not cut their dividend.

    Is the 5% yield correct? Probably. Of the 5.5% and over yields on REITs and corporations today, there is considerable income risk at this level. Realty Income carries income risk, but not at this level. So generally, I think its current yield is about right.

    BruceM
    May 22 10:24 PM | 3 Likes Like |Link to Comment
  • Retirement Strategy: Dividend Income Investing And The Distribution Phase [View article]
    Be Here Now
    I'm sorry to be such a doob, but the first year's % withdrawal will be either 3.65% or 3.77%, depending on your age on 12/31 of your RMD year.

    But your point is an excellent one, and one that retirees should understand going into RMDs. Assuming one's 70th birthday is between Jan 1 and Jun 30, the RMD percent requirement up to age 100 would be...

    AGE RMD %
    70 3.65%
    71 3.77%
    72 3.91%
    73 4.05%
    74 4.20%
    75 4.37%
    76 4.55%
    77 4.72%
    78 4.93%
    79 5.13%
    80 5.35%
    81 5.59%
    82 5.85%
    83 6.13%
    84 6.45%
    85 6.76%
    86 7.09%
    87 7.46%
    88 7.87%
    89 8.33%
    90 8.77%
    91 9.26%
    92 9.80%
    93 10.42%
    94 10.99%
    95 11.63%
    96 12.35%
    97 13.16%
    98 14.08%
    99 14.93%
    100 15.87%

    And to top it all off, at age 115 and older, the annual percent RMD is 52.63%!

    Methuselah, if he stuck to the minimum required withdrawal, would have had a very tiny TIRA balance when he got to the end of life.

    BruceM
    May 22 01:11 PM | 1 Like Like |Link to Comment
  • Retirement Strategy: Dividend Income Investing And The Distribution Phase [View article]
    TeachEnglish
    The IRS only requires that you or your spouse have compensation income that at least equals the amount of your Roth IRA contributions, and that your AGI not exceed the maximum allowed to be able to contribute to your Roth. That's it. The IRS does not trace the dollars that you actually contribute to the Roth...they can come from anywhere, including dollars that came from your TIRA as a result of the RMD, or dollars from your checking account, or dollars you found on the street...the source of the actual dollars contributed doesn't matter.

    BruceM
    Author: IRA: A Quick Reference Guide
    May 22 12:40 PM | 2 Likes Like |Link to Comment
  • Retirement Strategy: Dividend Income Investing And The Distribution Phase [View article]
    Slowly
    No, compensation income is NOT required to do a Roth conversion, nor is there an AGI limitation (after 2009) nor is there an age limit. Just remember that if you are considering doing a Roth conversion and you are over 70.5, you must subtract out the RMD amount before you may do the conversion (your IRA custodian should know this).

    You do require compensation income, from either you or your spouse, to contribute to a traditional or Roth IRA...but at age 70.5, you may no longer contribute to a TIRA. As long as you and/or your spouse have compensation income (or alimony if single), you may contribute to a Roth IRA at any age, providing you do not exceed the AGI limit for your filing status.

    BruceM
    May 19 05:34 PM | Likes Like |Link to Comment
  • Retirement Strategy: Dividend Income Investing And The Distribution Phase [View article]
    To convert or not convert now is a math exercise that considers...

    Current tax due to conversion (note, you can't just multiply your current marginal tax rate by the conversion, as a change in your AGI may have other tax effects)

    Future tax due to RMD, based on reasonable assumptions on what your TIRA will do between now and then.

    What you are paying your current additional tax-on-conversion with...using the conversion amount or from household cash flow. If out of the conversion, then there will be an opportunity cost associated with a conversion today.

    Done this a few times. For most, depending on your state tax rate on the conversion (which may be different than the tax on a future RMD), GENERALLY, if you've got room in the 15% bracket, it is USUALLY of benefit to do a conversion up to that amount.

    For those doing an in-kind transfer, an RMD is really nothing but a tax hike. Sticking with the RMD amount only, it would be like having a new annual expense added to your household expenses each year, beginning with the year you turn 70.5. How much of a new expense will depend on the size of your non-Roth IRAs and how young your spouse is.

    BruceM
    May 19 05:24 PM | 2 Likes Like |Link to Comment
  • The Latest Thinking On Best Practices In Retirement Planning [View article]
    Exeterguy
    Agree pretty much. But I too have been in the financial services industry from many years, and I, like you, would never waste my money on products that rely on deceptions and cherry-picked data to sell them.

    But there is one or maybe two characteristics of these insurance products that do indeed make sense to a few. Here's an example.....

    62 year old widow, knows nothing about financially managing the $800K IRA she inherited and has absolutely zero interest in learning anything...even the basics. She is a prime candidate for fraud and exploitation. She is what I call an 'annuity personality'...that is, a life annuity for her makes sense. It's a simple concept she understands and as long as the insurer is financially healthy, the income stream will be uninterrupted...which is what she wants. She is happy.

    Could she have gotten a better life cash flow, liquidity, flexibility, estate transference and growing purchasing power over retirement years using a passive and low cost stock/bond allocation constructed and managed by the likes of Rick Ferri? You bet!! But this assumes this widow could see value in this approach and was willing to enter into an investment agreement....an agreement which she would need to take the time to understand...with the portfolio manager. Ain't gonna happen.

    It took working with a few people like this widow to make me understand that a straight life annuity does, on rare occasion, have its uses.

    BruceM
    May 18 11:50 AM | 1 Like Like |Link to Comment
  • The Latest Thinking On Best Practices In Retirement Planning [View article]
    "...how to maximize the company's income from the annuities while hiding those portions of the policy information from the potential annuitants as much as possible without being obvious or illegal."

    This is the unwritten code of the insurance industry....always has been.

    I simply cannot understand why any adult would do business with an insurance company for other than straight insurance.

    BruceM
    May 18 11:30 AM | Likes Like |Link to Comment
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