Maximizing Your IRA: An Interview with Terry Coxon

By Dennis Miller

As working folks get closer to hanging up their spurs, it is easy to become overwhelmed. When should you take Social Security? What type of insurance do you need? Should you buy an annuity? Do you need nursing home insurance? Should you roll over your 401(k) into an IRA? The list goes on and on.


Retirement planning requires many irreversible decisions. We each need to get it right; however, what is right for us is not always right for someone else. And, in addition to basic number crunching, we each make assumptions about life and politics—sometimes without even realizing it.

One of my most significant personal decisions pertained to a Roth IRA. Managing your traditional or Roth IRA is an ongoing process, no matter how near or far you are from retirement. And the options are worth investigating regardless of the size of your portfolio. Making sure your money lasts requires much more than picking the right stocks. Owning those stocks—or whatever else you invest in—inside the right type of account can grow your portfolio faster and save you thousands of dollars in taxes, if not more.

I’m not shy about seeking out experts in different investment niches. In this spirit, I reached out to Terry Coxon, a senior economist and editor at Casey Research and principal in Passport IRA.

In the spirit of full disclosure, I want to add that Terry has taken the time to mentor me on occasion, and he’s encouraged me to bring some of my vast life experience to our readers. As Terry has reminded me from time to time, math is only part of the retirement puzzle—the uncertainties inherent to politics and the law are also integral pieces.

Terry travels the world, and I was lucky to catch him upon his return from a recent trip to the Cook Islands.

Dennis Miller: Terry, welcome. Many investors use a traditional IRA or retired with a lump sum from their 401(k). Can you tell us how a Roth IRA differs from those plans?

Terry Coxon: With a traditional IRA, if your income isn’t too high, you get a tax deduction for your annual contribution. But later, the money you withdraw is taxable as ordinary income, except to the extent of any non-deductible contributions you made. In the meantime, earnings accumulate without current tax, which helps the money grow much faster.

A Roth IRA is different. With a Roth IRA, you don’t get a tax deduction for your contributions; but all the withdrawals you later make can be tax free. The only requirements for keeping withdrawals 100% tax free are: (a) the Roth IRA must be in at least its fifth calendar year of existence; and (b) you must have reached the calendar year in which you will be at least 59 1/2 years old. As with a traditional IRA, earnings accumulate and compound free of current tax – which is the special power source of any retirement plan.
Most 401(k) accounts are similar to a traditional IRA in that contributions are deductible; withdrawals are taxable; and while they stay inside the account, earnings go untaxed. However, there is a variant called a Roth 401(k) that is available to sole proprietors and to participants in employer plans whose rules provide for Roths. With a Roth 401(k), there is no deduction for money that goes in; the money is invested free of current tax; and everything can be tax-free when it comes out.

Fleeing the High Tax Zone

 

Dennis: When I retired, I had a 401(k), and then rolled it over to a traditional IRA. As I began to understand the Roth IRA, I realized there were real benefits to putting my nest egg in a Roth. I had a CPA tell me not to do it, and he ran the numbers to show me why.

In April 2012, you published an article, Doing the Roth Arithmetic, which painted a much different picture. Can you explain all the factors and why they are so important?

Terry: Staying with a traditional plan or going to a Roth is a big decision, and it’s not always an easy or simple one. The decision needs to be based on the individual’s current circumstances, which are a matter of fact, and also on his hard-to-know future circumstances. Make the right decision, and you can come out way ahead. Let’s look at two extreme situations—which is helpful because extreme situations point to clear answers.

Situation #1 is the individual who has all of his investments in an IRA or other retirement plan, who is not in the top tax bracket, who expects that his tax rate is more likely to decline than to rise, and who expects to consume all of his assets in his own lifetime. That individual has nothing to gain by going the Roth route and might be walking into a higher tax bill if he takes it. If that description fits you, sit tight with your traditional IRA or 401(k).

Situation #2 is the individual with substantial investments outside of retirement plans, who is in or near the top tax bracket and expects to stay there, and who has more than he needs to live on for the rest of his life. That individual should definitely convert to a Roth. He’ll have to pay a big tax bill now rather than later, but he’ll get the better of the bargain. He will be buying out his minority partner—the government—that in any case will, sooner or later, collect 40% or so of his traditional IRA in taxes.

The money for the tax bill can and should come out of the individual’s non-IRA assets—which live in a high tax zone. That way, the net effect of converting to a Roth is to move capital from the high-tax zone (direct personal ownership) to the no-tax zone (the Roth).

You can get an added bonus by converting to a Roth IRA, and it’s a lot more valuable than a second ShamWow. A Roth IRA is not subject to the minimum withdrawal requirements that kick in at age 70 1/2 for someone with a traditional IRA. Escaping the minimum withdrawal requirements lets money stay in the no-tax zone longer, especially if you won’t need to spend it all in your own lifetime.

Don’t ask why, but unlike a Roth IRA, a Roth 401(k) is subject to minimum withdrawal requirements. However, you can convert a Roth 401(k) to a Roth IRA without tax cost.

Dennis: I have a friend who has a traditional IRA and is of the age where he has to take a required minimum distribution and pay taxes on the income. He is quite a bit older than his wife and would prefer to leave the money in the sheltered account. With a Roth IRA, are there any required withdrawal times or amounts?

Terry: Your friend is a good candidate for a Roth conversion. If he converts, he can stop making the withdrawals he doesn’t want to make. And once the Roth reaches its fifth calendar year, withdrawals he or his wife take will be tax-free. And if his wife doesn’t use it up, the Roth will be available for tax-free withdrawals by their children or other heirs.

Self-Directed and Open Opportunity IRAs

 

Dennis: A lot of folks think you have to have an IRA with a bank or brokerage company. Can you explain the concept behind self-directed Roth IRAs?

Terry: Quite a few people will be knocked over by the news, but the rules written by Congress allow an IRA to invest in almost anything (there are only a few, easy-to-live-with limitations). But when you go to a bank, broker, mutual fund family, or insurance company, you find that you can only invest in… their stuff. So go elsewhere.

“Self-directed” IRAs are available with a number of IRA custodians that specialize in opening doors to the full world of investment possibilities for IRA participants. They don’t promote any particular investments or investment products. Instead, they earn fees by doing the paperwork for pulling whatever investments you want under the umbrella of your IRA. It could be an apartment house or a farm or gold coins or private loans or tax liens or almost anything else. Rather than buying CDs from a bank, your IRA can be the bank.
It can be even better. A few custodians administer a special type of self-directed IRA called an “Open Opportunity” IRA. The idea is as powerful as it is simple. The IRA owns just one thing—a limited liability company that you manage. Since you are the manager, you have hands-on control, and you are free to buy almost any investment you think is right. You don’t need to wait for anyone’s permission or stamp of approval. The hands on the steering wheel are yours.

Dennis: What tips do you have for folks who want to roll their 401(k) over to a Roth? When should they start? Should they pay the taxes from the proceeds or other funds?

Terry: As I said earlier, the decision to convert isn’t simple. The best single indication that it is the right move is that you are able to pay the tax out of non-retirement-plan assets.

Dennis: I recently wrote an article about encore careers. If a retiree decides on a second career, can he start making contributions to his Roth?

Terry: Yes, no, and yes.

The first yes is: you are as eligible to contribute from your earnings from your encore career as you were during your earlier careers.

The no is: if your income is too high, you are not eligible to contribute to a Roth IRA.

The second yes is: Anyone can convert a traditional IRA to a Roth IRA. There are no income limitations. So you can always get to a Roth by contributing to a traditional IRA and then converting. The required waiting period is less than 15 nanoseconds.

Internationalizing Your IRA

 

Dennis: I’ve recently spoken with Nick Giambruno, senior editor of International Man, about international diversification. Can you help us understand our international options if we have money in a Roth?

Terry: This is one more wonderful thing about the Open Opportunity IRA structure. The LLC that lives inside the IRA can invest anywhere in the world. Want a brokerage account in Singapore? The IRA’s LLC can be the account holder. Want a farm? The LLC can buy it in New Zealand. Want gold? The LLC can keep it in a safe deposit box in Austria. Want your IRA to go into the ski rental business? The IRA’s LLC can open a shop in Chile. And the IRA’s LLC can own—or be—a foreign LLC.

Dennis: I have a good portion of my Roth offshore, but it is not inside an LLC. It is invested in traditional investments—stocks, bonds, etc., except on a worldwide basis and in a variety of foreign currencies. Are there times when an LLC might not be necessary?

Terry: Whatever you want your IRA to buy and wherever you want the investments to reside, doing everything through your IRA’s wholly owned LLC is quicker, easier, and cheaper. With the LLC in place, you don’t need to keeping going back to the IRA custodian for every transaction. You avoid fees and you avoid delays. You are in the driver’s seat.

Using a foreign LLC to hold foreign investments may give you two additional advantages. First, some foreign institutions are more willing to deal with a non-US LLC owned by a US person than they are to deal directly with a US person. Second, if the US government ever imposes currency controls or capital controls or undertakes a program of forced gold sales, an IRA’s foreign LLC—depending on the specifics of the new rules—might go untouched.

Dennis: Terry, I want to thank you on behalf of our readers. You have opened up avenues for real tax savings and additional safety.

Terry: People work hard, and it is tough for some to save money. Understanding their Roth IRA options is a good way for people to keep it and make it last. Enjoyed it, Dennis—glad I could help.

Final Thoughts from Dennis

 

With a traditional IRA, you get a tax deduction when you make your contribution, and that money grows tax-free. When you take it back out, it is subject to taxation.

A Roth works in the opposite manner. There is no tax deduction when you make the contribution, but it also grows tax-free. The difference is that when you take it out, there is no tax as long as you follow a few basic rules, which Terry discussed.

I am a strong advocate of maximizing your 401(k), particularly if your employer matches all or part of your contributions. Save as much money as you possibly can during your working career. At the same time, there are many reasons why, as Terry suggested, you might want buy out your business partner (the government) so you can grow your nest egg tax-free and make tax-free withdrawals as you see fit.

As you’ve just read, as the editor of Miller's Money Forever, I often have the pleasure of interviewing my colleagues on a variety of topics to give our subscribers even greater exposure to different investing sectors. Recent interviews include:

• Energy Profits with Marin Katusa, senior economist and editor at Casey Research;
• The Ultimate Layer of Financial Protection with Nick Giambruno, editor of International Man;
• Juniors for Seniors with Louis James, globe-trotting senior editor of Casey Research's metals and mining publications; and
• Other esteemed colleagues.

Gain access to everything our portfolio has to offer, as well as access to these top minds through occasional interviews and input, with your risk free 90 day trial subscription to Miller's Money Forever.

The article Maximizing Your IRA: An Interview with Terry Coxon was originally published at Millers Money.

Make sure you don't miss "What 10-Baggers [and 100-baggers] Look Like"

And the Band Plays On

By Dennis Miller 

Quantitative Easing (QE) is no longer a surprise, but the fact that it's continued for so long is. Like many Miller’s Money readers, I believe the government cannot continue to pay its bills by having the Federal Reserve buy debt with newly created money forever. This has gone on much longer than I'd have ever dreamed possible.

Unemployment numbers dropped in December and the Federal Reserve tapered their money creation from $85 billion to $75 billion per month. Why did the unemployment rate drop? Primarily because people whose benefits have expired are no longer considered unemployed. The government classifies them as merely discouraged, but the fact remains that they don't have jobs.

So, what is the problem? Let's start with the magnitude of money creation. Tim Price sums it up well in an article on Sovereign Man:

"Last year, the U.S. Federal Reserve enjoyed its 100th anniversary, having been founded in a blaze of secrecy in 1913. By 2007, the Fed's balance sheet had grown to $800 billion. Under its current QE program (which may or may not get tapered according to the Fed's current intentions), the Fed is printing $1 trillion a year.

To put it another way, the Fed is printing roughly 100 years' worth of money every 12 months. (Now that's inflation.)"

As Doug Casey likes to remind us: Just because something is inevitable, does not mean it is imminent. Well, sooner or later imminent and inevitable are going to meet. Interest rates are depressed because the Federal Reserve is holding our debt. Eventually those creditors outside the Federal Reserve will demand much higher interest rates.

Currently, 30 year Treasuries are paying 3.59%. If interest rates rose by 2%—still below what was considered "normal" a decade ago—the interest cost to our government would jump by 30% or more. It's hard to imagine the huge budget cuts or tax increases it would take to pay for that.

In the meantime, investors are caught between the proverbial rock and hard place. We cannot invest in long- or medium-term, "safe," fixed income investments because they are no longer safe. They could easily destroy your buying power through inflation.

At the same time, the stock market is not trading on fundamentals. It is on thin ice. Just how thin is that ice? Take a look at what happened when the Federal Reserve stopped propping up the economy with money printing.

Each time they stopped with their stimulus the market dropped. In the summer of 2013, Bernanke made his famous "taper" remark and the market reacted negatively, immediately. The Fed has had to introduce more money into the system to stop the slide.

Investors who need yield know they have virtually no place else to go but the stock market. Most realize it is a huge bubble; they only hope to get out ahead of everyone else when the time comes. And we can't hold cash; inflation would clobber us. So, we've been forced into the market to protect and grow our nest eggs.
It reminds me of playing musical chairs as a kid. The piano player would slow down the tempo. We would all grab the back of a chair and get ready to sit. No one wanted to be the one left standing.

Today the band is playing the "Limbo Rock." Investors are in limbo, knowing the music will stop eventually. We're all going to have to grab a chair quickly—and the stakes are much higher now.

The chart below on margin debt comes courtesy of my friend and colleague at Casey Research, Bud Conrad.

Investors now have a dangerous amount of money invested on margin—meaning they borrowed money from their brokers to buy even more stock. There are strict margin requirements on how much one can borrow as a percentage of their holdings. If the stock price drops, the investor receives a margin call from his broker. That has to take place quickly under SEC requirements. The broker can also sell the holding at market to bring the client's account back into compliance.

Record margin debt, coupled with the thought of traders using computers to read the trend and automatically place orders in fractions of a second, paints an uneasy picture. The unemotional computers will not only sell their holdings, they may well initiate short sales to drive the market down even further.

As the lyrics from the "Limbo Rock" ask, "How low can you go?" When the market limbos down, it will likely be faster and further than we've imagined.

Why is 2014 different? I've been taking stock of 2013 as I prepare our tax filings. Our portfolio did very well last year, thanks in great measure to the analysts at Casey Research. With our Bulletproof Income strategy in place, I am very comfortable with our plans going forward.

At the same time, I am as jittery as a 9-year-old walking slowly around a circle of chairs, knowing that sooner or later the music will stop. The music has played for years now and we are in the game, whether we like it or not. Pundits have gone from saying "this is the year" to more tempered remarks like "this can't go on forever." They place their bets on inevitable, but hedge them on imminent.

What can we do? One of the mantras behind our Bulletproof Income strategy is: "Avoid catastrophic losses." Doug Casey has warned us that in a drastic correction most everyone gets hurt, so our goal is to minimize that damage and its impact on our retirement plans.

Here are a few things you can do to protect yourself.

• Diversify. Not all sectors rise and fall at the same speed. Optimal diversification requires more than just various stock picks across various sectors. Limit your overall stock market exposure according to your age. You don't have to be all in the market. There are still other ways to earn good, safe returns. International diversification will give you an added margin of safety, too, not only from a market downturn but also from inflation.
• Apply strict position limits. No more than 5% of your overall portfolio should be in any single investment. When I look at the record margin debt, I wonder how so many investors can go hog wild on a single investment. Planning for retirement demands a more measured approach.
• Set trailing stop losses. If you set trailing stop losses on your positions at no more than 20%, the most you could lose on any single trade is 1% of your overall portfolio. The beauty of trailing stops is the maximum loss seldom happens. As the stock rises the trailing stop rises with it, which will lock in some additional profits.
• Monitor regularly. As part of my regular annual review, I go over each one of my stop-loss positions. I use an online trading platform to keep track of them. Depending on the stock, you may want to place a stop-loss sell order or use an alert service that will notify you if the stock drops below your set point. Other investors prefer to use a third party for notification.
  
  So, why do I check my stop losses? My particular trading platform accepts the orders "GTC," meaning "good 'til cancelled." But GTC really means "Good for 60 days and then you have to re-enter the notification." Just read the small print.
  
  Also, sometimes stop losses need adjusting. As a stock gets closer to the projected target price, you may want to reduce the trailing stop loss to 15%, or maybe even 10%, to lock in more profits.

We all want to enjoy our retirement years and have some fun. I sleep well knowing we have several good circuit breakers in place. We may get stopped out of several positions and stuck temporarily holding more cash than we'd like. But that means we've avoided catastrophic loss and have cash to take advantage of the real bargains that are bound to appear.

And so the band plays on as baby boomers and retirees continue to limbo.

From the very first issue of Money Forever our goal—my mission­­—has been to help those who truly want to take control of their retirement finances. I want our subscribers to have more wealth, a better understanding of how to create a Bulletproof portfolio, and confidence their money will last throughout retirement.

With that in mind, I’d like to invite you to give Money Forever a try. The current the subscription rate is affordable – less than that of your daily senior vitamin supplements. The best part is you can take advantage of our 90-day, no-risk offer. You can cancel for any reason or even no reason at all, no questions asked, within the first 90 days and receive a full, immediate refund. As you might expect, our cancellation rates are very low, and we aim to keep it that way. Click here to find out more.

The article And the Band Plays On was originally published at Millers Money

The Ty Cobb Approach to Retirement Investing

By Dennis Miller

When baseball fans talk about players from the early 1900s, Babe Ruth is normally the first person mentioned. He was a great home run hitter with 714 career home runs, a record that stood for almost 40 years. Only two men have surpassed it. Ruth struck out 1,330 times, a record that also stood for several decades.


Most people think of Ty Cobb as a gritty player who held the career stolen base record for many years. But let’s look a bit deeper. Ty Cobb broke into major league baseball in 1905 at the age of 19 and hit .240 his first season. For the next 23 seasons, he hit over .300.

Cobb holds a lifetime batting average of .367, a record that still stands today: 85 years and counting. His career strikeout total is 357. He averaged 14.9 strikeouts per season, striking out 3.1% of the time, a remarkably low average.

Young people love to swing for the fences and hit those huge gains. With retirement money, an occasional home run is nice; however, our overriding goal is to preserve capital and avoid catastrophic losses. Ty Cobb didn’t hit as many home runs as Babe Ruth, but he was a model of consistency.

Once you’ve built your nest egg, you’re not trying to run up the score; you’re trying to stay ahead.
Anyone who has tried to play catch-up with his portfolio can tell you there’s no such thing as a five run homer. Newsletters touting the chance to double or triple your money can grab our attention, but experienced investors realize that those gains are only possible if you’re willing to take on the commensurate risk.

Swinging for the fences with retirement money won’t get the job done. With money that must last forever, putting your emotions aside and focusing on safety and consistency is paramount.

Safety First

 

Have you ever watched a thin-ice rescue scene? A person standing with all of his weight on thin ice can easily fall through as all his weight is concentrated. The rescuer trying to reach this person normally lies flat across the ice, spreading out his weight.

The same approach works for today’s retirement investor. Step one is to spread risk through diversification among (and within) asset classes, selective investments, position limits, and real-time monitoring of your portfolio via stop losses. While we like the income, avoiding catastrophic losses is our mantra.

It’s also worthwhile to reassess just what “safe” means. We can’t count on inflation remaining at historical 2% levels. FDIC insured CDs and US Treasuries are now guaranteed money losers when you factor in inflation. (“FDIC insured” does not shield us from inflation.)

This brings us to the Step two in the Ty Cobb approach: inflation protection. Investing in long-term, fixed-income investments during times of high inflation can result in catastrophic losses, precisely what we need to avoid.

Step three: find investments with low interest-rate sensitivity. Ross Perot coined the phrase “giant sucking sound” to describe jobs leaving the US. That will pale in comparison to the giant sucking sound when interest rates start to rise and everyone tries to exit the market at once. The scene after Bernanke’s tapering remark was a small preview. Interest-rate-sensitive investments will be hit hard and fast.

The long-term bond market offers a good example of interest rate sensitivity. Take an A rated, ten year corporate bond paying 3.68%, for example. Now imagine you bought $10,000 worth; you’d receive $368 per year in interest until maturity. If, however, market interest rates rise during that time, you’d have to discount your selling price to resell that bond in the aftermarket to compensate for its below market interest rate.

“Duration” is the term for calculating that discount. The duration for this bond is 8.41. For every 1% rise in market interest rates, the resale value of your bond will drop 8.41%, or $841.00—more than two years’ accumulated interest. Should this happen, you’d have two lousy choices: You could hold on to the bond at a lower than current market value interest rate until it matures; or you could sell your bond for less than you paid for it.

If inflation is the reason interest rates are rising, that decreases your buying power even further, particularly if you choose to hold on to the bond.

While top quality bonds are considered safe, that safety stops at the borrower’s ability to repay you. It does not protect your investment from a reduced resale value in the aftermarket, nor does it protect you from inflation. At the risk of sounding like a broken record, let me repeat myself: holding long term, low interest paying bonds at the wrong time can produce catastrophic results.

Interest-rate sensitivity isn’t limited to bonds. The stock market now has a similar problem. Many companies paying high dividends are so flooded with cash that they’ve become interest-rate sensitive. Utility stocks, for one, come to mind. When Bernanke said “taper,” the prices of utility stocks tumbled.

It is important to understand that this is a distinct type of risk. Should the market rise dramatically, stocks and bonds with high interest-rate sensitivity will be extremely vulnerable.

The final step in the Ty Cobb approach is finding a way to maintain your quality of life while managing your portfolio. While “set it and forget it” isn’t an option, no one wants to spend all of his or her time fretting about money. Finding ways to accomplish your investment goals and to sleep comfortably at night is what it’s all about.

So, to recap, your overriding objectives are to:

• avoid catastrophic losses;
• protect ourselves from inflation;
• minimize interest rate sensitivity; and
• free up time to enjoy life.

Your Investment Pyramid

 

Core holdings should make up the base your investment pyramid. Core holdings—precious metals, farmland, foreign currencies—are about survival. Hopefully you never have to touch them. No, I’m not suggesting that you prepare for the apocalypse, but we all need survival insurance. Mentally and practically, it should be separate from your active portfolio.

On the other hand, the investments recommended in the Money Forever portfolio are for income and profit. These investments are meant to keep you going for the rest of your life.

Here are the allocations you should use in today’s market. As conditions change, you may have to make adjustments, but we’ll help you do just that as events unfold.

The Ty Cobb approach uses three investment asset classes:

1. Equities providing growth and income and a high margin of safety;
2. Investments made for higher yield coupled with appropriate safety measures; and
3. Conservative, stable income vehicles.

50-20-30 Equals Bulletproof

 

You can balance yield and safety in today’s market. How safe is the Miller’s Money Forever approach? Bulletproof, in my opinion. And that comes from a former Marine who understands that bulletproof is doggone safe—but nuclear trumps all. There are some cataclysmic events that are effectively impossible for individual investors to predict or protect against. So, unless you’re the “build a nuclear bunker” type, our approach should let you sleep well at night and enjoy retirement with minimal financial stress.

We currently recommend holding 50% of your portfolio in solid, diversified stocks. These stocks should provide dividend income and growth through appreciation. Invest no more than 5% in any single pick, and use a 20% trailing stop loss. This way, the most you can lose on any single pick is 1% of your portfolio. Sometimes we recommend tightening our stop losses on specific stocks—we’ll notify you of those circumstances in a timely fashion.

If you follow the 5% rule, you should have no more than 10 stock positions in this 50% slice of your portfolio.

You might be wondering: Why not just invest in an S&P 500 fund? When the market swings, S&P 500 fund investors will be the first ones headed for the door, with the program traders that short the S&P chasing them out. We got our clue with the “taper caper,” and we want to mitigate that risk.

For the Money Forever portfolio, we searched for solid companies that are not so flooded with investor money that they’ve become interest-rate sensitive. Dealing with our picks individually allows us to limit our positions and set stop losses. We’re better off trading a little bit of yield for the safety of investing in solid companies that are less volatile than the market as a whole.

Catching a peek our Bulletproof portfolio is risk free if you try today. Access it now by subscribing to Miller's Money Forever, with a 90 day money back guarantee. If you don't like it, simply return the subscription within those first three months and we'll refund your payment, no questions asked. And the knowledge you gain in those months will be yours to keep forever.

The article The Ty Cobb Approach to Retirement Investing was originally published at Millers Money.

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Buffett’s annual letter: What you can learn from my real estate investments

By John Mauldin

It does not hurt to be reminded once in a while about what it means to be a “true investor,” and who better to remind us than Warren Buffett? Today’s Outside the Box comes to us from the pages of Fortune magazine (hat tip to my good friend Tom Romero of Capital Research Partners, who is a pretty fair investor in his own right).

Fortune seems to have had the inside scoop on Mr. Buffett’s pronouncements over the years. I still keep some old Fortune magazines with interviews of Mr. Buffett to remind myself about the basics. For whatever reason I was up at 5 o’clock this morning and began reading this piece, and it functioned just as well as coffee as a wake up call.

Warren starts off by telling us the stories of two relatively minor real estate investments he made, one in the ’80s and the other in the ’90s, but where he’s going is straight to the heart of some fundamental investing principles.

Most of us get all wrapped up, from time to time, in the daily or weekly movements of our investments; but Warren wants us to remember that “Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”

Easier said than done; but he’s right, of course. Now, it’s certainly OK dwell at length on the macroeconomic big picture, right? I mean, that’s half my fun most days! No, says Warren,

Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle's scathing comment: “You don't know how easy this game is until you get into that broadcasting booth.”)

So Warren wants our feet planted squarely on the field of play; he doesn’t want us up in the stands or, heaven forbid, watching the game on TV. And forget reading some commentator’s analysis of yesterday’s game or his take on the rest of the season!

Well, OK. So if this is the last Outside the Box or Thoughts from the Frontline you ever read, at least I got you this far, right?

But read on, and be sure not to miss Warren’s very pithy (and timely!) quotation from the late Barton Biggs.
And let me point out that when Warren suggests a future portfolio of 90% S&P index funds, he is talking about very, very long-term portfolio design and not something that retirees who need income or have a shorter-term focus (less than multiple decades) should be thinking about.

And to be fair, Buffet’s process of choosing which investments to put into his portfolio would not allow him to end up with very many components of the S&P 500. So I don’t share his bias against active management, though I have to agree that most of what passes for active management is problematic. But there is a lot we need to remember and ponder in Buffett’s Benjamin Graham old-style value investing.

I have never met the man, but I would like to. I think we might have more in common than some readers would imagine. Including hamburgers.

Today I’m flying to Los Angeles, where I will speak tonight and tomorrow for my partners at Altegris Investments. I am particularly looking forward to spending time with Jack Rivkin. I always learn a lot. Then I get on a plane to fly all the way across the country to Miami. I will be speaking for my close friend Darrell Cain at his annual conference as well as spending time with Pat Cox, who is going to come over from the West Coast of Florida. I hope to get a good part of this weekend’s letter done on the flight.

Then it’s on to Washington DC for a series of meetings. George Gilder is flying down from Boston and has offered to introduce me to a few of his friends, and I will do the same for him. We will hopefully be sitting down for a video in which we’ll discuss some mutually interesting ideas, as well as share a dinner or two where we’ll talk about a variety of policies with a few people who are perhaps in positions to do something about them.

Packing for a week in a variety of different climates is always an interesting process. And keeping up with my reading and writing and gym time and, most importantly, friend time will make for a very busy next seven days. You make sure you enjoy yourself. Now let’s see what Warren has to tell us about investing.

Your thinking a lot about portfolio strategy lately analyst,

John Mauldin, Editor

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Buffett’s annual letter: What you can learn from my real estate investments

This story is from the March 17, 2014 issue of Fortune.
February 24, 2014: 5:00 AM ET

In an exclusive excerpt from his upcoming shareholder letter, Warren Buffett looks back at a pair of real estate purchases and the lessons they offer for equity investors.
By Warren Buffett

“Investment is most intelligent when it is most businesslike.”
–Benjamin Graham, The Intelligent Investor

It is fitting to have a Ben Graham quote open this essay because I owe so much of what I know about investing to him. I will talk more about Ben a bit later, and I will even sooner talk about common stocks. But let me first tell you about two small non-stock investments that I made long ago. Though neither changed my net worth by much, they are instructive.

This tale begins in Nebraska. From 1973 to 1981, the Midwest experienced an explosion in farm prices, caused by a widespread belief that runaway inflation was coming and fueled by the lending policies of small rural banks. Then the bubble burst, bringing price declines of 50% or more that devastated both leveraged farmers and their lenders. Five times as many Iowa and Nebraska banks failed in that bubble’s aftermath as in our recent Great Recession.

In 1986, I purchased a 400 acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000, considerably less than what a failed bank had lent against the farm a few years earlier. I knew nothing about operating a farm. But I have a son who loves farming, and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out.

I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would, of course, be the occasional bad crop, and prices would sometimes disappoint. But so what? There would be some unusually good years as well, and I would never be under any pressure to sell the property. Now, 28 years later, the farm has tripled its earnings and is worth five times or more what I paid. I still know nothing about farming and recently made just my second visit to the farm.

In 1993, I made another small investment. Larry Silverstein, Salomon’s landlord when I was the company’s CEO, told me about a New York retail property adjacent to New York University that the Resolution Trust Corp. was selling. Again, a bubble had popped – this one involving commercial real estate – and the RTC had been created to dispose of the assets of failed savings institutions whose optimistic lending practices had fueled the folly.

Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20% of the project’s space – was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere.

I joined a small group – including Larry and my friend Fred Rose – in purchasing the building. Fred was an experienced, high-grade real estate investor who, with his family, would manage the property. And manage it they did. As old leases expired, earnings tripled. Annual distributions now exceed 35% of our initial equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150% of what we had invested. I’ve yet to view the property.
Income from both the farm and the NYU real estate will probably increase in decades to come. Though the gains won’t be dramatic, the two investments will be solid and satisfactory holdings for my lifetime and, subsequently, for my children and grandchildren.

I tell these tales to illustrate certain fundamentals of investing:

•You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”

•Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.

•If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.

•With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

•Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)

My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in determining the success of those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.
There is one major difference between my two small investments and an investment in stocks. Stocks provide you minute-to-minute valuations for your holdings, whereas I have yet to see a quotation for either my farm or the New York real estate.

It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.

Owners of stocks, however, too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.

Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of “Don’t just sit there – do something.” For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.

A “flash crash” or some other extreme market fluctuation can’t hurt an investor any more than an erratic and mouthy neighbor can hurt my farm investment. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy.

During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well. Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?

When Charlie Munger and I buy stocks – which we think of as small portions of businesses – our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings – which is usually the case – we simply move on to other prospects. In the 54 years we have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decision.

It’s vital, however, that we recognize the perimeter of our “circle of competence” and stay well inside of it. Even then, we will make some mistakes, both with stocks and businesses. But they will not be the disasters that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.

Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.
I have good news for these nonprofessionals: The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th century, the Dow Jones industrial index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st century will witness further gains, almost certain to be substantial. The goal of the nonprofessional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

That’s the “what” of investing for the nonprofessional. The “when” is also important. The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. (Remember the late Barton Biggs’s observation: “A bull market is like sex. It feels best just before it ends.”) The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never sell when the news is bad and stocks are well off their highs. Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness.

If “investors” frenetically bought and sold farmland to one another, neither the yields nor the prices of their crops would be increased. The only consequence of such behavior would be decreases in the overall earnings realized by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties.

Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.

My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire Hathaway (BRKA) shares will be fully distributed to certain philanthropic organizations over the 10 years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s. (VFINX)) I believe the trust’s long term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.

And now back to Ben Graham. I learned most of the thoughts in this investment discussion from Ben’s book The Intelligent Investor, which I bought in 1949. My financial life changed with that purchase.

Before reading Ben’s book, I had wandered around the investing landscape, devouring everything written on the subject. Much of what I read fascinated me: I tried my hand at charting and at using market indicia to predict stock movements. I sat in brokerage offices watching the tape roll by, and I listened to commentators. All of this was fun, but I couldn’t shake the feeling that I wasn’t getting anywhere.

In contrast, Ben’s ideas were explained logically in elegant, easy-to-understand prose (without Greek letters or complicated formulas). For me, the key points were laid out in what later editions labeled Chapters 8 and 20. These points guide my investing decisions today.

A couple of interesting sidelights about the book: Later editions included a postscript describing an unnamed investment that was a bonanza for Ben. Ben made the purchase in 1948 when he was writing the first edition and – brace yourself – the mystery company was Geico. If Ben had not recognized the special qualities of Geico when it was still in its infancy, my future and Berkshire’s would have been far different.

The 1949 edition of the book also recommended a railroad stock that was then selling for $17 and earning about $10 per share. (One of the reasons I admired Ben was that he had the guts to use current examples, leaving himself open to sneers if he stumbled.) In part, that low valuation resulted from an accounting rule of the time that required the railroad to exclude from its reported earnings the substantial retained earnings of affiliates.

The recommended stock was Northern Pacific, and its most important affiliate was Chicago, Burlington & Quincy. These railroads are now important parts of BNSF (Burlington Northern Santa Fe), which is today fully owned by Berkshire. When I read the book, Northern Pacific had a market value of about $40 million. Now its successor (having added a great many properties, to be sure) earns that amount every four days.

I can’t remember what I paid for that first copy of The Intelligent Investor. Whatever the cost, it would underscore the truth of Ben’s adage: Price is what you pay; value is what you get. Of all the investments I ever made, buying Ben’s book was the best (except for my purchase of two marriage licenses).

Warren Buffett is the CEO of Berkshire Hathaway. This essay is an edited excerpt from his annual letter to shareholders.

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The article Outside the Box: Buffett’s annual letter: What you can learn from my real estate investments was originally published at Mauldin Economics.

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Traders and their Retirement....a Three Part Video Series/Download

Wendy Kirkland reached out to us at The Crude Oil Trader a few weeks ago and shared her "Merit Paycheck" video series with us to review. Our review is in and the results are....All of our readers should watch this video.

She's a very smart lady with some tips for those traders and investors looking at retirement and she has bonus downloads and reports once you start watching to make sure you get the most out of it. In fact, what you learn in this training series can be easily duplicated by you right away without you buying a single thing.

Just click here to hear from Wendy and get her videos

As always we want to know what our readers are thinking so please feel free to leave a message and let us know what you think about Wendys methods.

See you in the markets,
Ray @ the Crude Oil Trader

Traders and their Retirement....a Three Part Video Series/Download

Six Traits of Successful Retirees

By Dennis Miller

When I coached baseball many years ago, a young ballplayer came to me asking for advice. I offered my opinion: he needed to get his act together. Then, like many young men might do, he griped about me to one of the other coaches. Our paths crossed again when he was 28 years old, at which point he said, "Now that I have a family of my own, I've thought back on your 'lectures' and realized you were just answering my questions honestly. Thank you."


Not surprisingly, my lectures as a coach weren't so different from those I'd received from a WWII colonel turned coach and teacher at my high school. The only difference: I never asked for his opinion, it was offered as he held my shirt collar. Still, when I came home on leave from the Marine Corps a few years later, I showed up at my old high school, walked onto the practice field, and thanked him. He was a solid mentor when I needed one but was too young to know it.

Years later, as a retirement mentor, I've spent countless hours analyzing the habits shared by successful retirees. Six stand out, and I urge all of our readers to take these steps sooner rather than later. I'm not going to grab you by the shirt collar like my coach did, but I'm confident you'll find this "lecture" worth reading.

1. Cut the financial cord with your children. All parents have one basic responsibility: to equip their children to survive on their own, both emotionally and financially.
   
   Retirees are often the wealthier members of an extended family, or they are perceived as such. But having money does not make you a bank. If a family member needs money, let him or her borrow it elsewhere. The wealth you've accumulated has to last you the rest of your life. The best way to remind your family and yourself of this simple fact is to simply say "no."
   
   Of course, some accidents and disabilities cannot be prevented, and there are times to rally behind family members truly unable to put a roof over their heads or food in their bellies. But for every truly unavoidable catastrophe, there are dozens more instances of parents enabling a freeloader.
   
   You've worked too hard to sacrifice your financial independence and give up your golden years. Even if you have enough to support two generations indefinitely, being the "Bank of Parents" won't help anyone in the long run.
2. Be your own "pension fund" manager. Independence is the real goal of retirement. That means listening to experts, but also learning to make savvy financial decisions for yourself.
   
   Today, pensions are virtually nonexistent in the private sector. Soon they won't exist in the public sector either. So all of your retirement, including saving, investing, debt reduction, tax planning, estate planning, is up to you.
   
   There's a lot to learn, but the information is there for the taking. I've known too many people who retired with a large chunk of change only to panic because they had no clue how to manage it. These folks were afraid, rightly so, because their lack of financial know how made them vulnerable.
   
   Give yourself a financial education while you're accumulating wealth so you can enjoy that wealth once you retire. Otherwise, you might leave a high stress job for a high stress retirement.
3. Maximize your tax-preferred retirement savings. Only 10% of those eligible for employer-sponsored 401(k) programs maximize their contributions. There are real financial benefits to contributing to your 401(k), and it's a mistake to turn down that free money, especially if your employer will match all or part of your contributions.
   
   In that same vein, tapping into retirement accounts to pay off bills is almost always a mistake. Unless you absolutely need the money for basic survival, you're much better off leaving your retirement money alone. Like many things in life, once you tap those funds, it gets easier and easier to do it again.
   
   Before Congress passed the first Social Security Act in 1935, retirement was for a wealthy few. Since then, Social Security has fostered the illusion that we need not worry about money and that retirement doesn't require a large personal nest egg. Reality is far harsher.
   
   I know people who've tried to live on their Social Security alone; now they are all back at work. A happy retirement rarely comes for people who choose to worry about retirement later.
4.  Get out of debt. Many retirees are drowning in debt. It's a topic we touched on in The Reverse Mortgage Guide when discussing why seniors are turning to reverse mortgages at an increasingly younger age.
   
   Independence is pretty hard when you don't have any money. And don't fool yourself: if you have a million dollars in your brokerage account and a million dollar mortgage, you're broke. Forget all the fancy formulas. When you stop paying people to rent their money, that's when real wealth building can start.
5. Get some professional help. Even if you have a small nest egg, I strongly recommend going to a professional certified financial planner (CFP) for a regular checkup. I don't mean pay someone to manage your money, although that is an option. Much like an annual physical, however, we can all benefit from an independent, qualified professional assessing where we are and how to stay (or get) on course.
   
   The checkup might cost a few hundred dollars, but it's money well spent. Retirees cannot afford to be penny wise and pound foolish.
6. Get in synch with your spouse sooner rather than later. During your working years, you trade time and expertise for money. For most folks, the goal is to save enough so that they don't have to work full time to survive. Then, during retirement you trade money for time to pursue other interests. Sad to say, many people struggle to pinpoint what those interests are once they get there. One spouse might want to travel while the other is a homebody, etc.
   
   Retirement is no fun if only one spouse is living their dream. Happier couples talk and plan how they want to spend their time long before retirement day.

As someone in or approaching retirement age, you've lived long enough to be a mentor in some area of life. So you already know that mentoring is about telling people what they need to hear, whether it's on the baseball field, in the boardroom, or at the kitchen table (where most life lessons are learned).
I urge you to pass your own "secrets to success" on to the next generation; they will thank you for it… eventually.

In addition to our regular weekly and premium monthly issues, we've been hard at work producing a series of special reports on need to know retirement topics: financial advisors, reverse mortgages, income-producing stocks and low-fee ETFs, to name a few.

You can download each of these timely special reports individually; or, if you really want to kick start your financial education, you can begin your Money Forever premium subscription now and receive access to all of our special reports, our current issue, and the Money Forever archives.


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Getting Shocked by Utility Stocks

By Dennis Miller

Retirees' portfolios need to be defensive, meaning they minimize risk but still have the potential for growth and income. Historically, this meant including a few widow-and-orphan stocks in your retirement portfolio....public utilities with nice dividends.


Utilities experience little volatility, their dividends are solid, and the demand for their product is constant, regardless of how well the economy is doing. Government regulation also gives them a leg up, since utilities face little competition. They set their rates, consumers pay up with little fuss because they have few alternatives, and the utilities turn a profit.

So, we at Miller's Money Forever wondered, is it time to add one or two utilities to our own portfolio? As I talked through the idea with our chief analyst, I could hear him clicking away on his keyboard in the background. A little research on a couple of utilities quickly put things in perspective. Had we bought in to Exelon (EXC) in early May at the wrong time, we almost would have been stopped out by a 20% trailing stop, since the stock fell as far as 19%. We were both shocked.

But that's only one utility. What about the sector as a whole? With a few more clicks, we learned that the Utilities Select Sector SPDR (XLU), a $5.4-billion exchange-traded fund of utilities, had fallen as far as 11% since the beginning of May. That's an enormous move in such a short period of time for what many consider a staple sector for retirement portfolios.

Wait a minute here! Utility stocks are supposed be the ultimate safe investment. They didn't earn the nickname "widow and orphan stocks" for being volatile, so what the heck happened?

History Does Not Guarantee Future Performance

 

We ran an in-depth analysis and came up with a bit of a history lesson for me to pass along. Let's start with where defensive stocks stood prior to the rapid rate increase in Treasuries. With yields near record lows, investors piled in to dividend stocks in search of income. But they didn't pick just any type of stock—they specifically chose defensive stocks with a beta of less than one. For a quick review, a beta of one means a 10% move in the stock market should theoretically move the stock 10%. A beta of 0.5 means a 10% move in the market should move the stock only 5%.

In addition to retail investors, more sophisticated analysts suggested moving in to these stocks as well. One of the most common Wall Street valuation models examines three primary factors: dividends, beta, and the US Treasury rate. When the beta and Treasury rates are low and the dividend is high, a stock is shown to be more valuable. Based on this model, a stock's value is more dependent on Treasury rates and the dividend than what often drives value: cash flows and growth.

In a nutshell, because there are no safe, decent interest-bearing investments available, many billions of dollars went into utility stocks. In some sense, utilities began to act like bonds. And when interest rates rise, bond prices fall. As a result, what was once considered the definitive stable investment is now interest-rate sensitive, just like long term bonds.

In order to get a better visual of what's been happening, we tracked XLU's performance since May 1—a period of rapidly rising rates—and compared it to a theoretical beta-based utility performance as well as the S&P 500. With a beta of 0.63, XLU should move 6.3% whenever the market moves 10%. In many situations beta works well, but unfortunately, it doesn't capture every risk, including interest-rate risk.

The blue line traces the return on the S&P 500. The green line depicts how XLU theoretically should have moved based on its beta. The red line shows how it actually performed. Note the enormous difference, bottoming out as far as 11.2% down.

Although beta is typically used as a back-of-the-envelope measure of risk, it's not doing a particularly good job for utilities in a rising-rate environment. And while the S&P 500 has recovered from June's turbulence, utilities are still down for this period.

After I saw the data, I asked what we should expect in the future. While I suppose it makes little difference if a retiree is holding utility stocks for the dividends, utilities will likely lose value as interest rates rise. That could be a bit unnerving.

This could be a real problem for retirees, as it's common practice for investment advisors at major brokerage firms to put their more conservative investors in utilities. A seasoned veteran once told me that no broker ever got sued for putting clients' money into utilities. I wonder how many brokers and investment advisors have noticed the shift happening in utilities with higher rates.

In light of rising interest rates, we have refined our criteria for selecting solid and safe investments for the Money Forever portfolio. Unfortunately, not everyone was has caught on. Take a look at your portfolio to see whether you need to trim down your utilities exposure. Should the market crash, I'd rather be holding a utility than General Motors, but at the same time, if interest rates keep going up utilities will feel the pain.
I discussed this issue—as well as others facing retirees—in a very recent and timely online event called America's Broken Promise: Strategies for a Retirement Worth Living. This free event’s all-star cast explains the unique challenges retirees face today—challenges far different from what we were raised to expect.

The presentation is hosted by my colleague, David Galland of Casey Research, and features John Stossel, formerly on ABC's 20/20 and now with Fox Business Network, David Walker, former Comptroller General of the United States, Jeff White, President of American Financial Group, and me of course.

This is the one event you must see to ensure you retire on your own terms. Use this link to find out more and to sign-up.

5 Ways To Protect and Grow Your Retirement: Whether You’re 45 or 75 or Somewhere In Between

By Dennis Miller at Casey Research.....

Your retirement dreams have never been in a more perilous situation, at least not in the memory of anyone alive today. Rising taxes and health care costs, diminishing benefits and next to nothing yields have forced seniors and those saving for retirement to seriously considering drastic means.

The options aren't always pretty: a diminished standard of living, working longer, taking on a part time job or just plain doing without. Investors who take steps now can shield themselves from the coming challenges thrust upon retirees.... Read the entire article.

5 Ways To Protect and Grow Your Retirement: Whether You’re 45 or 75 or Somewhere In Between

 

John Carters "Small Account Growth Secrets" Webinar

Last week we showed you some live trades from our trading partner John Carter that proved....with the right mindset and a little training anyone can earn a regular income trading.

Whatever your account size, if you're focused on trading for income, then you need to attend one (if not both) of the webinars that John Carter is putting on Tuesday, June 11th at 8:00PM New York Time or Wednesday, June 12th at 1:00PM New York Time

You can reserve Your Seat HERE now as there is limited seating available.

Here's just a sample of what John is going to share.......

*   The difference between trading for income vs. growth

*   Why attempt to double your account "before" it goes to zero in 12 months or less

*   How to control risk while being an aggressive trader

*   What Stops to use and when

*   The mindset of an aggressive trader

Click Here to Register

I will be attending and hope to see you there!

Ray C. Parrish
The Crude Oil Trader

John Carters "Small Account Growth Secrets" Webinar

Does this concern you? Let's look at the "Macro Trend of the Markets"

Great post from our trading partner Doc Severson this morning.....

The Bureau of Labor Statistics stated 60% more seniors are working today than they were 10 years ago. Isn't that shocking? There are some clear reasons for this.

When I was a kid, I was told to "save for retirement" and invest in the stock market. This was good advice when bank interest rates were upwards of 10%, and you could count on the S&P making regular advancements. But over the last 13 years, people are only now starting to see the writing on the wall.

Back in the day, the macro trend of the markets steadily climbed from the mid-70s UNTIL the peak in 2000.

But since the crash in 2000, we've seen nothing but sideways trading for the last 13 years and interest rates at an all time low. During the same time, we also had two major crashes, and well.....who knows what could happen by the end of the year.

So what's next?

I'd rather not pretend to predict the market. Instead, I'll continue to trade a robust trading plan, proven to generate a consistent monthly income during the same time most people have struggled.

It's a system that's taken me years to develop, and is uniquely designed to use a combination of non-directional strategies, semi directional strategies, and directional strategies. This way your trading results are independent of market direction!

Not only will I teach you how to trade these trading strategies, when you enroll in OptionsMD today, I'll take you by the hand to show you exactly what I plan to trade, how I plan to trade it, and let you see my open trades.

So what do you say?

Bottom line....If you want to learn how to make a consistent monthly income by protecting and growing your wealth Click here to join me inside of OptionsMD today!

Monday's Earnings Reports.....Atlas Pipeline Partners [APL] and Ensco [ESV]

Atlas Pipeline Partners (NYSE: APL) today reported adjusted earnings before interest, income taxes, depreciation and amortization ("Adjusted EBITDA"), of $67.7 million for the first quarter of 2013, driven primarily by a continued increase in volumes across the Partnership's gathering and processing systems. Processed natural gas volumes averaged 1,033 million cubic feet per day ("MMCFD"), a 63% increase over the first quarter of 2012.

Distributable Cash Flow was $43.5 million for the first quarter of 2013, or $0.67 per average common limited partner unit, compared to $35.2 million for the prior year's first quarter. The Partnership recognized a net loss of $27.5 million for the first quarter of 2013, which included a $26.6 million loss on the early retirement of the Partnership's 8.75% Senior Notes due 2018, compared with net income of $6.5 million for the prior year first quarter.

Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures, which are reconciled to their most directly comparable GAAP measures in the tables included at the end of this news release. The Partnership believes these measures provide a more accurate comparison of the operating results for the periods presented......Read the entire Atlas Pipeline Partners earnings report.

Ensco plc (NYSE: ESV) reported diluted earnings per share from continuing operations of $1.36 in first quarter 2013, compared to $1.20 per share in first quarter 2012. Discontinued operations primarily related to rigs and other assets no longer on the Company’s balance sheet resulted in a loss of $0.05 per share a year ago. Diluted earnings per share increased 18% year to year to $1.36 from $1.15 in first quarter 2012.

Earnings increased $52 million to $317 million and operating income grew 17% to $402 million on record revenues of $1.150 billion in first quarter 2013. These increases were driven by a $28,000 increase in the average day rate and a 6% increase in floater rig days as new rigs were added to the active fleet......Read the entire Ensco earnings report.

Make sure to catch all of Doc Severson's video series and download the PDF's while the links still work....

"The NEW Roadmap to Consistent Monthly Income"

Download the "NEW" Iron Condor Trading Strategy

Ever wonder why 70% of mutual fund managers can't beat the S&P?

Size Doesn't Matter.....Your Account Size that Is

More and more traders are trying their luck in the options trading game. But it has nothing to do with luck. It simply has to do with "time decay", the inevitable passing of time and the hope of reducing your risk and improving your odds of taking a profit before the clock runs out.

This is not an area of the market that anyone should blindly take a spin at. You need to understand the adjustability and broad range of trade structure that allows you to profit whether you are confronting a low volatility market, sideways or consolidating conditions, or a high volatility marketplace.

We get messages here at The Crude Oil Trader on a regular basis asking us to recommend options set ups and make suggestions on our members trades. We pass these messages on to one of two options traders that have become the most highly regarded options traders around. J.W. Jones and John Carter.

This week John has put together a video for us explaining how he is using options as income trades, no matter what the account size. What's interesting is he literally "gives" us the set ups that he uses on his own accounts. You need to see why these trades can be used on any size account and still be profitable. I think this will interest a lot of home gamers and pros alike who are trying to break into options trading. A market that has grown by 500% in the last decade.

One of the things that has made so many people resistant to options trading is just how complicated the talking heads on TV make options trading sound as they rush through their trade of the week. John teaches more about options income trading in a few minutes then you've read in most books.

Here's just a sample of what John will show us in this short video......

* How he made $52,875.00 last week trading Google Options

* His favorite options trading strategy for generating income

* Trading Setups with a probability of 75%

* How to limit your risk when the trade goes against you and much more

Grab a pen and paper so you can take some notes then just click here to watch the video. It's only 12 minutes long and in that short time I think John will change your mindset when it comes to options.

E-Minis Unfair Advantage....Have You Watch This Yet?

So many people are CRUSHING the markets right now and making lots of money!

At the same time, far more traders are gripped with fear and struggling just to break even….

The difference?

Confidence and consistency.

As you know, you build both when you understand the best times of the day to trade and how to avoid the common mistakes and “hidden” pitfalls that prevent consistent profits.

Trading veteran, Todd Mitchell ,just came out with a video training that shows (using his actual charts!) the hurdles holding back most traders from making money!

Watch closely as he uses minimal money to pull predictable profits from the E-minis, while only researching a single chart.

VIDEO > The E-Minis Unfair Advantage

The knowledge he shares will shortcut your learning curve and help you avoid falling victim to shady advice. Please don’t miss out.


P.S. When you watch the video, I’m almost certain you’ll uncover several nuggets of wisdom that will eliminate mistakes costing you profits. This is not just about gain – it’s about acting prudently to prevent and avoid financial pain!

Just click here, every trader must see this video