Why Ray Lucia Likes Nontraded REITs
By JLP | September 2, 2010
In a comment left on my review of Ray Lucia’s Buckets of Money this morning, Kirk wanted to know what Ray Lucia likes about nontraded REITs. Here is what I found:
• Nontraded REITs do not have the volatility that public REITs have.
• Nontraded REITs can bring in capital for purchasing properties. Public REITs cannot raise funds as easily (they can borrow or issue new shares). According to Lucia, this could put nontraded REITs in a better position to get the best deal and the most diversification. I’m not sure how bringing in new capital doesn’t negatively affect current owners of nontraded REITs.
• Nontraded REITs are usually bigger than public REITs and are therefore more diversified.
I found this point confusing because a few paragraphs prior, Lucia wrote this: “…nontraded REITs don’t fluctuate daily in price. They are usually private en route to becoming a listed, or public, company, or the properties are scheduled to be sold in the marketplace.”
• Part of the sales load on nontraded REITs goes to pay for due diligence. Lucia says that public REITs aren’t in the acquisition phase like nontraded REITs are. Acquiring properties requires due diligence.
Lucia tries to put a positive spin on loads:
“Instead of seeing load, transparent or otherwise, as some burdensome surcharge, look at it as a positive way to ensure the private REIT will have the capital to put to work and get a good deal for you. What’s more, if you buy a REIT that’s in an acquisition mode, you don’t buy it to sell right away. You need to hold it long enough to recoup those expenses. Spread out over the length of the time you own the REIT, th eload may not amount to much.”
Sounds kind of “salesy” to me.
Topics: REITs | 3 Comments »
A Review of Ray Lucia’s “Buckets of Money Retirement Solution”
By JLP | September 2, 2010
I received a copy of Ray Lucia’s The Buckets of Money Retirement Solution: The Ultimate Guide to Income for Life
Lucia opens the book with a discussion of the credit crisis and how it has affected people’s retirement accounts. It seems like every book these days discusses the credit crisis. Lucia approached it more from the standpoint of what can be done from this point forward rather than just rehash the turmoil. The second chapter offers up four steps that people can do in preparing for the future:
1. Rebuild savings.
2. Rethink retirement years.
3. Retool retirement savings plans.
4. Reinvent strategy.
Pointers and ideas (like use less gas) are offered for each step. This particular part of the book seemed unnecessary to me.
The real meat of the book begins in chapter three, which begins the discussion of the “buckets strategy.”
What is the Buckets of Money strategy?
Basically, the strategy sets up three “buckets” representing three different goals and time horizons. Like this:
Bucket 1. Short-term income. This bucket is used to meet day-to-day expenses.
Bucket 2. Intermediate-term income. This bucket is used to hold assets that will be used for income a few years down the road.
Bucket 3. Growth. This bucket is used to grow assets for future income.
He then goes into details about what investments to put into each bucket. Bucket 1 is reserved for short-term investments and lifetime income (annuities). This bucket has a 1-5 year time horizon.
Bucket 2 is reserved for riskier income-generating assets. Fixed annuities, corporate bonds, international bonds, and a whole host of various annuities. Yes, Lucia even suggests looking into fixed indexed annuities. This part bugged me a little. It wouldn’t bug me so much but nearly all the positive vibes for some of these annuities comes from those who sell them. To Lucia’s credit, he did address expenses and the importance of keeping them under control.
Bucket 3 is where the growth assets are kept. This is where stocks, REITs, and other riskier assets are held for the long-term. He dedicates an entire chapter to REITs and nontraded REITs. Lucia is a fan of nontraded REITs, which are purchased through a broker and do incur sales loads.
After discussing the Buckets, he moves on to give a hypothetical example of positioning a couple for retirement. This chapter was interesting but a little on the vague side. For instance, when is the right time to move assets from Bucket 3 to Bucket 2? I never really found a solid answer to that question.
The rest of the book has chapters on annuities, REITs (mentioned above), personally owned real estate, taxes, and withdrawal strategies.
Overall I liked the book. There were a few things I didn’t like. Some of his charts were out of date (one ended in 1997, another ended in 2004). In his discussion of annuities, he cited a study co-sponsored by Wharton and New York Life that was very complimentary toward annuities. This is not surprising since New York Life co-sponsored the study. What would one expect it to say? Finally, staying on the topic of annuities, he talked about how confusing some of the products were. I’m of the mind that if a product is that confusing, it should be avoided like the plague. But, that’s just me. I bring my own biases to the table.
*Affiliate Link
Topics: Books, Retirement Planning | 6 Comments »
Trailer for “Inside Job”
By JLP | September 1, 2010
I have a feeling that I’m not going to like this movie. It’s supposed to be a documentary but I have a feeling it’s going to be one-sided. I want to watch a documentary based on Thomas Sowell’s “The Housing Boom and Bust.” That would be worth watching.
Topics: Miscellaneous | 7 Comments »
Question of the Day: Who’s Your Favorite CEO?
By JLP | September 1, 2010
ANNOUNCEMENT: Today’s the last day to enter for your chance to win a copy of The Road Out of Debt. I’ll announce the winner tomorrow morning.
Here’s is today’s Question of the Day:
Who is your favorite CEO?
I would have to say that mine is Warren Buffett. I like him because he tells it like it is (read his Shareholder Letters). If they had a bad year, he tells you that they had a bad year. It’s refreshing.
Runner up to Mr. Buffett is Herb Kelleher, retired CEO of Southwest Airlines. He had a sense of humor and ran a very successful airline. Most of all, he never had to go jail (yet)…lol.
What about you? Who is your favorite CEO? Why?
Topics: Question of the Day | 4 Comments »
Total Returns for the S&P 500, 400, and 600 Indices (Through August 2010)
By JLP | September 1, 2010
Well, August was a bad month for stocks:
I have little historical information for the Midcap 400 and the Smallcap 600 but I can tell you that this was the worst August for the S&P 500 since August 2001.
Topics: Investing, S&P 500 Index | No Comments »
According to Schwab, Most Baby Boomers Haven’t Changed Their Retirement Plans
By JLP | September 1, 2010
My Schwab PR friend sent me this survey (press release):
American investors 50-60 years of age
1. In light of current economic conditions, have you changed your thinking about at what age you will retire?
• 38% – yes, I am thinking I will retire later than planned
• 4% – yes, I am thinking I will retire earlier than planned
• 54% – no, I have not changed my thinking
• 4% – don’t know/refused
This surprises me. I would have thought the market conditions of the last few years would have derailed some retirement plans.
2. If you think you will continue working after you’re eligible for full retirement benefits, which of the following best describes why?
• 28% – for more money
• 25% – to remain active mentally, physically, or socially
• 17% – to receive health insurance benefits
• 15% – because I enjoy working
3. Which of the following do you think is the most important lesson you can teach younger generations about saving and investing?
• 50% – live within your means
• 30% – begin saving at an early age
• 10% – avoid high-interest debt
• 4% – get financial advice from a trustworthy source
Interesting that only 4% responded with “get financial advice from a trustworthy source. I think the first three are much more important. You do those three and you save yourself a lot of heartache.
4. Do you think you’ll need the financial support of others at some point during retirement?
• 74% – NO
• 21% – YES
5. How likely or unlikely do you think it is that you will have debt when you retire?
• 44% – somewhat to extremely likely
• 54% – somewhat to extremely unlikely
Topics: Retirement Planning | 5 Comments »
John Bogle’s Thoughts on P/E Ratios
By JLP | August 31, 2010
From page 321 of John Bogle’s book, Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition
“In the shorter run, the irrationality in stock returns is created by the speculative element. Stock market irrationality can be measured by the ephemeral—but critical—factor represented by the stock market’s price-earnings ratio. If, following Lord Keynes [John Maynard Keynes], we use the term investment to describe the fundamental return based on earnings and dividends, we use the term speculation to describe this second determinate of stock prices: the price that investors will pay for each dollar of corporate earnings. If the power of fundamentals dominated market returns in the very long run, the power of speculation dominates market returns in the shorter run. Speculation is, ultimately, temporary and fickle. Over time, investors have been willing to pay an average of about $14 for each $1 of earnings. But if, in their optimism, they are willing to pay $21, stock prices will leap by 50 percent for that reason alone. If, in the pessimism, they are willing to pay only $7, stock prices will fall by 50 percent. The changing price of $1 of earnings creates powerful leverage indeed, but it doesn’t last forever, nor even for an investing lifetime.”
Like the post from earlier today mentioned, the reason P/E ratios are lower than normal right now is that investors are not confident about future earnings. A stock that has a P/E ratio of 10 isn’t a bargain if future earnings are lower than current earnings. But, that is short-term thinking. If, as Bogle stated in the paragraph above, the historical P/E for that particular company is 14, and the current P/E is 10, it could be a good time to buy the stock to hold for the long-term.
*Affiliate Link
Topics: Books, Investing | No Comments »