Investment Strategy Conference - October 27, 2018

Financial Planning
 3

Financial Planning
1. Understanding how emotions impact retirement decisions

2. Retirement income planning

Richard Sylla

3. Understanding what is IMPORTANT to YOU in retirement

4. Why you probably still need a trust

“The harder we work, the harder it is 4

to surrender.” ~Vince Lombardi

 5

“ We simply attempt to
be fearful when others
are greedy and to be
greedy only when
”
others are fearful.
~Warren Buffett
 6

DO NOT Make Decisions Based on Emotions

Greed and Euphoria

Wash, rinse, repeat

Fear and panic

 7

Past performance is not a guarantee of future results.

 8

What is sequence risk?

Cartoon
 9

Tale of 2 Retirements Earning 9.3%

S&P 500 returns from 1979-2009

Net worth S&P reverse order of returns

Source: Bloomberg
Age
Past performance is not a guarantee of future results.
 10

“ The greatest destroyer of

wealth is short-term
circumstances
Crisis = Danger + Opportunity
frightening people out of
their long-term plans
~Peter Lynch
”
 11
Having an investment policy statement and
financial plan are like a lighthouse to a ship in a
stormy sea.
 12

The Case for Active Management

Source: Bloomberg
Past performance is not a guarantee of future results.
13
 Roth Conversions
14
15

When should you consider Roth conversion?

• When owner can pay the tax on conversion from non-account assets
• If there is a long time-horizon (i.e. beginning of retirement)
• When the owner anticipates that income tax rates will stay the same or increase

When should you not consider a Roth Conversion?

• When owner expects tax rates to decline or expects to be in a much lower marginal tax bracket in the future
• When there is a shorter time horizon
• If taxes on conversion are paid from the IRA/qualified plan
What Is a Net Unrealized Appreciation?
15
15
 16

For illustrative purposes only. This is not specific tax advice

 Retirement Income Sources and Tax Status
17

Real Taxable Retirement Pension/Social

Roth Munis
Estate Bonds Accounts Security

Taxed as Ordinary Income Tax-Free

Stocks

Capital Gains
 Longevity Is a Blessing and a Curse
18

For a couple that reaches age 65 there is a

50% chance one person will live to age 92.

Source: Society of Actuaries

 Retirement Age
19

Full Retirement Age (FRA) Percentage of FRA benefit you will receive:

Birth Year Full Retirement Age Full Retirement Age of Full Retirement Age
Start Collecting At:
66 of 67

1943-1954 66 62 75% 70%

63 80% 75%
1955 66 and 2 months
64 86.70% 80%
1956 66 and 4 months 65 93.30% 86.70%
1957 66 and 6 months 66 100% 93.3%
1958 66 and 8 months 67 108% 100%
68 116% 108%
1959 66 and 10 months
69 124% 116%
1960 and later 67 70 132% 124%
Source: Social Security Administration
Social Security Breakeven
20
 Relocation in Retirement
21

Stay where you are Relocate

- Stay near loved ones - Lower cost of living

- Don’t have to uproot - Better quality of life

- Less stressful retirement - Can afford to do more

 22

Median National Income

 Interesting Facts About States
23

✓ States with no income tax: AK, FL, NV, SD, TX, WA, and WY

✓ States that tax investment income only: NH, TN

Trusts: Why Do I Still Need One?
24

Source: Cal Probate Code 10810, 10811

 Protecting Your Legacy
25

Example: Without a trust

Husband’s Estate

Kids from First Marriage Second Spouse

Her Heirs
Example: With a trust

Husband’s Estate

Kids from First Marriage Second Spouse

Surviving Spouse’s Estate

Source: Financial Sense Wealth Management

26
 27

Summary and Conclusion

1. Understanding how emotions
impact retirement decisions

2. Retirement income planning

3. Understanding what is IMPORTANT

to YOU in retirement

4. Why you probably still need a trust

 28

A template for understanding

Big
Debt
Crises
Understanding Debt and Credit
29

• Debt increases your buying power

• Credit can be used for productive
good or speculation and
consumption
• Credit becomes a problem when
income is not sufficient to 

service debt
 Why Do Debt Crises Come in Cycles?
30

• Borrowing and spending more

than you make

• Having to spend less than you

make creates the cycle

• Classic sign of bubble is when

money borrowed is used to
make debt service payments
 31

Debt and Business Cycle Controlled by Central Banks

Debt Cycle Problems
1. Debt service payments
2. Reduction of lending-spending
going forward
Debt Cycle Solutions
1. Austerity
2. Debt defaults/restructuring
3. Central bank money printing
4. Wealth distributions
 Early Phase of the Cycle - Phase I: The Boom
32

• Economic recovery
• Income growing faster than debt
• Private, corporate, government debt grow
• Lending and leverage increase
• Assets appreciate
Phase II: The Bubble
33

• Debt rising faster than incomes

• Accelerating asset returns
• Rising incomes & assets increase
capacity to borrow
• Borrowers feel rich - they spend
• Investors buy assets with leverage
• Central banks feed frenzy with low
interest rates
 The Bubble Now Inflates
34

• Low interest rates help to sustain

borrowing and asset prices
• As assets keep rising so do spending
and income levels
• Boom encourages new investors and
speculators
• Confidence increases, credit standards
fall, banks/lenders lever up
• Borrowing mismatch, illiquid
investments
 Spotting Bubbles
35

• Price and values separate

• Market prices reflect perpetual trend
• Broad based bullish sentiment
• Assets financed by high leverage
• New buyers/speculators
• Feeling everyone is going to get rich

Source: StockCharts
 Phase III - The Top: It’s as Good as It Gets
36

• Everyone believes it can get better

indefinitely
• Central banks tighten
S&P 500
• Problems begin to surface in credit
markets - debt payments
• Lenders worry - lending slows
• Credit spreads widen

Source: StockCharts
Characteristics of the Top
37

• Central banks tightening

• Seeds of recession sown

• Inflation and unemployment

rise

• Riskier assets start to

decline
 Phase IV - Recession or Depression
38

• Central banks (Fed) cut

interest rates

• Eases debt burdens and

elevates asset prices

• Beyond 0% - QE applied
drives down long-term
rates
 Impact of Recessions
39

Source: Bloomberg, Financial Sense Wealth Management

1. Central bank cheapens currency by lowering rates

2. Financial impact of declining asset prices vs.

remaining debt

3. Investors become fearful, reluctant to invest or

spend
 Potential for Policy Mistakes
40

PROCEED WITH CAUTION

• Budget cuts (austerity)

• Governments raise taxes
• Central banks raise interest rates
Phase V - The Beautiful Deleveraging
41

• Falling debt burdens and low inflation

• Stimulation through money printing
• Liquidity and credit support
• Debt service relief from increased money
 A Beautiful Deleveraging
42

• Credit and liquidity

are plenty
• Debt burdens reduced Fed 

by lower interest & Bank
rates Housing 

• Money printing & Stock Market
offsets falling credit
and deflationary debt
forces
• Printing money
replaces credit
destruction
• Asset prices inflate
 Debt Crises and Recessions
43

Done Well Done Poorly

Bubble • Rates raised gradually, restraint of • Asset bubbles allowed to inflate
credit • Debt is kept cheap

Top • Gradually loosen to lessen impact • Keep tightening well after bubble bursts

Recession • Lower rates - liquidity coordinated • Slow to cut rates

fiscal & monetary stimulus • Austerity / taxes
• Don’t protect important
institutions

Beautiful • Aggressive monetization • Monetary & fiscal policy out of sync

• Stimulative fiscal targeting
Deleveraging • Weak institutions protected
• Non-essential institutions
allowed to fail or merge
 How Central Banks Respond
44

Helicopter drop:
Put money in hands
Print money and of spenders vs.
Lower interest rates buy financial assets investors/savers
 Wealth and Strategy Summary
45

Hour 1 Hour 2
1. This time it’s different 1. Late stage business cycle

2. Business cycle extended 2. Peak housing / autos

3. No immediate recession or 3. Can predict can prepare
bear market
4. Defensive opportunities
4. Index bubble

- financial concentration
 5. Opportunities for income
- liquidity shrinkage
 Wealth and Strategy Summary
Hour 3
1. Lower rates individuals, business, and
estates
2. Major change to deductions & exemptions
3. No major change to education
4. Obamacare mandate repealed
5. Tax free investing, tax smart withdrawals
in retirement, Roth strategies
46
Hour 4
1. Avoid making emotional decisions
2. Importance of having a plan
3. Retirement alternatives
4. Importance of trusts
5. Understanding debt and credit cycle
This Time It’s Different (Where We Are Now)
47

1. Massive fiscal stimulus extended business cycle

and bull market in assets
2. No recession until late 2019 or early 2020
3. New recession could be brief and short followed
by massive fiscal/monetary stimulus
4. Next bear market fast and furious
Bubbles, Troubles, & Opportunities
48

ich a ir
R F

lu e
ic va
rin s
Int p
he a
C

Time
 How Will We Respond to Protect Capital and Earn a Return?
49

1. Gradually increasing bond position

2. Reducing stock market risk
3. Defensive sectors of the economy:
staples, health, utilities
4. May add precious metals
depending on the U.S. dollar
 How Financial Sense Advisors Can Help
50

1. Develop custom plan to achieve

financial goals
2. Avoid emotional roller coaster
3. Prepare vs. predict
4. Keep you informed
5. Monitor and moderate your plan
6. We are investment fiduciaries
 51

Break