Fun with the 401k Rollover

I read an article today via the Wall Street Journal.  It was entitled "Best retirement move almost nobody makes."  The sub-title went on to say, "Experts say more savers should roll plans into their new job's 401k."  Here is a link to the entire article:

http://www.marketwatch.com/story/best-retirement-move-almost-nobody-makes-2013-04-15

In the article, the author makes some claims that I found suspect.  Here are a few of them:

"New research from Congress’s investigative arm, the Government Accountability Office, suggests that paperwork hassles and a hard sell from IRA providers mean investors too frequently overlook the latter option (roll from 401k into another employer 401k)."

"Investing pros agree that cashing out retirement savings is almost never wise. But there are benefits to both of the other alternatives: IRAs typically offer a wider range of investment options, while 401(k) plans offer lower costs, particularly if they are sponsored by a big employer.

Those cost savings can be significant in the long run."

"What makes IRAs so popular? One big factor, according to the GAO report, is aggressive industry marketing, including sales pitches delivered through “educational” 401(k) materials and misinformation delivered by call-center representatives."

"Those happy with their old employer’s 401(k) plan typically have the option to keep the money there. But those who want to consolidate their savings should consider putting in the extra work to roll the funds into the new employer’s 401(k), according to Kevin Chisholm, associate director at investment industry researcher Cerulli Associates. “It will be well worth your time,” he says."

I question just about everything in the article, so a I wrote a note to Mr. Ian Salisbury, the writer at MarketWatch, and author.  His response with my original note is reprinted here:

Mr. (Chumpmenudo):

The article was based, in part, on a recent report by the Government Accountability Office. I think you will find the answers you are looking for inside.

http://www.gao.gov/products/GAO-13-30

I am glad that you are happy with your Vanguard IRA. However, retirement experts I've talked to do not rate access to MLPs high on the list of priorities for most retirement savers.

Ian

Ian Salisbury

Staff Writer

MarketWatch.com

The Wall Street Journal Digital Network

1211 Avenue of the Americas

6th Floor

New York, NY 10036

p 212-416-2241

f 212-416-2027

@SalisburyIan

Date: Tue, 16 Apr 2013 18:42:44 +0000

To: Microsoft Office User <ian.salisbury@dowjones.com<mailto:ian.salisbury@dowjones.com>>

Subject: Rolling 401k into another?

Why on earth would you advocate this?  Very irresponsible.  Who are these "vendors" you reference in this article hard selling us to roll into an IRA?  Investment options for an IRA are LIMITLESS.  I own stocks, funds, ETFs, MLPs, CEPs, and REITs.  My evil "vendor" is Vanguard, where I'm charged $2.00 per stock trade, and my weighted average expense ratio is below 0.25%.

What a terrible article.

Sincerely,

(Chumpmenudo)

Now admittedly, I was a bit rude with my note, and I regret it a little, but I really did think the article is pretty irresponsible.  Especially after going to the GAO link he provided.  It turns out the government commissioned a study to find out why 9 out of 10 people roll their 401k money into a self directed IRA vs. into their next employer's 401k.  The Department of Labor and the IRS did the investigation, and surprise surprise, the reason is NOT that a self directed IRA with low expenses and limitless options is preferable to investors, it's that shady (my word) "vendors" are crossing some line and having unfair influence on the decision, and that more needs to be done by employers and plan administrators to educate we ignorant investors! (my words again ;-))

Just a thought;  could it be that investors are actually pretty smart, and that the data in the study shows that we choose to manage our own money in a self directed IRA vs. an expensive and restrictive 401k by a margin of 9 to 1?  Amazing.

Here is what I wrote back to Mr. Salisbury (very civil I thought):

Dear Mr. Salisbury.

Thank you for the link;  I read the report summary, and several pages of

the actual document.  Might I suggest a better title for an article based

on this report?

"When leaving a company, what should you do with your 401k?   You have

four options."

Then write a useful piece with some actual actionable information.  Do

your homework.  I think you'll find the best, lowest cost option for 98%

of all employees is to indeed roll their money out of the high

expense/limited choice 401k plan, and into a low cost/infinitely flexible

self directed IRA.

Why don't you compare the average plan cost for the two options?  Why

don't you investigate the sheer number of options available for the two

differing routes.  It isn't difficult, I've done this twice for my wife

and me.

And yes you are correct, MLPs aren't always smart in an IRA, and require

that I file a K1 with my tax return.  I own most in my taxable account,

but the point is, I have access to them if I choose, and you don't know my

personal financial situation do you?  (One of the points you use to argue

against IRA rollover advice).

And here's an idea for another article.  How much did this study cost tax

payers, and why was it commissioned?  If you think about the

premise/objective, it's ridiculous.  The government is paying to study why

the IRS and Department of Labor make it so damn difficult and confusing to

plan for retirement.  Give me a break.  And their recommendation is burden

employers and plan administrators with more regulations requiring

additional education around different options?

How about scrapping the whole 401k system in favor of employee directed

and controlled IRAs with the same contribution and match rules 401k plans

enjoy? Then let the financial world compete for our retirement dollars.

That would be a great article, I hope you write it.

Best,

(Chumpmenudo)

Chump

Chumpmenudo Portfolio Update for 4-12-13

Here are the current holdings in the Chump retirement IRA.  As a refresher, I started building this portfolio in July of 2012, and had it mostly completed by around November 2012.  Timing was good, as the portfolio has been fully invested for all of this year.  YTD performance, with no new money entering the portfolio, is a little better than 10%.

From the chart below, I see that very few positions have yet to reach dangerous levels of overvaluation.  Looking at the EYE ratio, a super useful estimate of return on equity based on EPS growth and dividends, most of the portfolio is still above 7:1, which is my cutoff for most new purchases.

New additions to the portfolio are BBL and O.  BBL has is a nice replacement in the materials and mining sector for CLF, which I sold earlier this year.  O, while overpriced for my taste, is a REIT I've been watching for 5 months.  I initiated a 1/3 position at a price I think is too high, but the stock is up over 7% since my purchase, so I'm not complaining.  I'll look to add to both positions during a correction in the coming year.

While many of my blue chippers like KO, MCD, WMT, and JNJ are pricey at these levels, I have no interest in selling any of these.  My next sell will likely be COP - so far no dividend increase this year, so I'm watching them closely.

When I have a bit more time, I'll update my gains/losses by position, and discuss position weighting, since some have grown nicely.

That's all for now.

Chump

Gold, Silver, and Why the US Stock Market is Soaring

I came upon this article today, and it makes a lot of sense.  For now, this bodes well for US equities.
I'll also likely buy a little physical gold and silver in the coming weeks if the trend continues.

FYI

Larry Edelson: Last week, I told you about the hundreds, if not thousands of readers that wanted my head for remaining bearish on gold and silver.

Well, gold and silver have taken the shirts off the backs of loads of investors and analysts who refused to listen to me!

Gold has now cracked major support at the $1,583 and $1,554 levels. And silver has now sliced right through key support at $27.58.

What’s more, it is now confirmed: Gold should head much lower, first to the $1,480 level, then even lower to below $1,400. Silver should plunge as low as $20 in the weeks ahead.

Why are traditional safe-haven assets plunging when there are so many problems in the world?

In a nutshell, it’s because they’re not safe-haven assets right now.

I can already hear my email inbox beeping like crazy over that statement. I’ll be accused of treason.

But the simple fact of the matter is that for a variety of reasons, other asset markets have now become safe havens. Namely, the dollar and U.S. equities.

And that’s because right now, there are other overriding concerns on investors’ minds.

First off, there are the new and justifiable fears of confiscation, set off by the Cyprus event. If your deposits in a bank aren’t safe, then how safe could gold be? After all, it was confiscated once before by Roosevelt.

Second, almost the entire world already knows that the sovereign bond markets of Europe and the United States are just about the worst investment one can make.

Stop there. Money deposited in a bank is not safe. Money invested in a European or U.S. sovereign bond is not safe, and no yield to speak of either.

Third, is there safety to be found investing in the euro? Hardly!

Is there safety to be found in the Japanese yen, which is actively and aggressively being devalued? Hardly!

Is there safety to be found in the Chinese yuan, which just hit a 19-year high against the U.S. dollar? Perhaps there is longer-term. But right now the yuan is not international enough and not liquid enough to handle the amounts of capital that are on the move.

So then, what and where is the best place to put your money today? It has to be an investment that is …

1. Extremely liquid and can handle huge amounts of investment.

2. Largely safe from government confiscation.

3. Offering at least some sort of chance to generate a decent income.

4. Denominated in a currency that is being, at least right now, less actively devalued than the Japanese yen and at risk of outright failure like the euro.

If you follow the above thought process through logically and unemotionally, you can now see why millions of investors, corporate fund managers and even corporate treasuries are opting to put their money into the U.S. dollar and the U.S. equity markets rather than just about anything else right now.

Of course, the above is an oversimplified explanation of the actual process underway now in the markets and the forces that are at work.

But it is precisely what’s happening.

Look, I love gold as much as any of you. Over the long-term there is no better store of value.

But gold (and silver) is a commodity just like any other. At times, its safe-haven aspect will shine, while at other times, other asset markets will perform that role.

And right now, the dollar and U.S. equities have moved to the forefront. That will change, and commodities will move back to the forefront with gold leading the way higher …

But it’s not likely to happen until investors fully realize that Washington is just as broke as Cyprus, Italy, Spain, Greece, France, and others. And that’s a ways off.

So Here’s What I Recommend …

FIRST, do NOT look to gold and silver for safety right now. Their interim bear markets are not over, not by a long shot. Ditto for mining shares.

While there are going to be the inevitable short-covering rallies and bounces, gold (NYSEARCA:GLD), silver (NYSEARCA:SLV), platinum (NYSEARCA:PPLT), palladium (NYSEARCA:PALL), and mining shares (NYSEARCA:GDX) are all headed lower.

SECOND, if you are loaded up with gold and silver and mining shares from much, muchlower prices and you decide to hold through thick and thin to capture their long-term potential, then at least consider hedging.

As I mentioned in my special Money and Markets alert on April 3, the best way to do so in my opinion is by purchasing shares in ProShares UltraShort Gold ETF (NYSEARCA:GLL) and ProShares UltraShort Silver ETF (NYSEARCA:ZSL).For mining shares, consider the Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST).

THIRD, do not expect other commodities to rally right now either.

Copper is getting killed. Oil is now rolling over to the downside and has the potential to fall substantially. Grain markets are getting slaughtered. Soft commodities, such as coffee, sugar, and cocoa are also on the cusp of sharp declines.

FOURTH, stay in the dollar now. The dollar is in an interim bull market. One good way to play it is via the PowerShares DB US Dollar Index Bullish Fund (NYSEARCA:UUP).

FIFTH, start deploying money into cream-of-the-crop U.S. equities. Buy on pullbacks. But only buy great U.S.-based multi-national companies that offer you a decent dividend.

Right now, the U.S. stock markets are due for a pullback. But the Dow Industrials gave me a verypowerful long-term buy signal at the end of March. After the pullback passes, I expect the Dow to work its way up to near, or slightly above the 18,000 level ― possibly by early summer.

SIXTH, start making U.S. real estate investments. Most think I’m nuts on this one too. But U.S. real estate is dirt-cheap on an international basis and is becoming a safe-haven investment for capital that’s on the move.

Foreign buyers see U.S. real estate as a safe haven … and a bargain.

Consider well-capitalized real estate investment trusts and the like that spin off income.

And if you’re in the market for your first home, or a second home, now is a great time to buy and finance it at historically low mortgage rates, but do not finance with anything other than a fixed-rate mortgage.

If you’re super wealthy, look at some other asset markets too ― such as diamonds, art work, and numismatic coins. I am not an expert in any of them, but from a broad macro trend point of view, they are likely to skyrocket higher as safe havens for the super wealthy.

Best wishes, as always …

Written By Larry Edelson From Uncommon Wisdom Daily

Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended inUWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whoseaccuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Halliburton

HAL had a nice today in the market, up over 3% to $40.39, so I thought I'd give it a check up.  I bought HAL in July 12, August 12, October 12, and this past February 13.  My average buy price is $34.34, so I'm up 17.63% on the position.  Here is a graph of price and volume for the past year:

I was originally attracted to HAL due to undervaluation coupled with growth prospects.  I though HAL would be a stock to sell, once it reached fair value.  Here is a FAST Graph for the holding:

Fair value based on the normal PE for the past six years of 14.3 is a price of $43.  So as I near that price, should I contemplate selling?  Here is a look a future projections for earnings:

Future growth looks good due their involvement in natural gas drilling (fracking), and a big push internationally.  Further, HAL recently announced an increase in the quarterly dividend from $.09 to $.125 per share, and increase of 39%.  They also released a statement saying that would continue to pay share owners an increasing dividend, so now its a dividend growth stock.

M* gives HAL 4 stars, and FAST Graph has its EYE ratio at 12:1, so for now, I'm holding for the long run.

Best,

Chump

Nice WSJ Article on Chevron Today

Chevron, Shell and Big Oil's Big Divide

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By LIAM DENNING

Chevron CVX +0.03% just took silver. That offers gold for investors.

A decade ago, Chevron's market capitalization of $70 billion was half the size ofRoyal Dutch Shell RDSB.LN +0.07% 's. This year, though, Chevron has opened up a lead: Worth $232 billion, it is now the second largest of the Western oil majors, trumping Shell's $215 billion.

It isn't first time Chevron has overtaken Shell; it nudged ahead briefly in the depths of the financial crisis and last October. But this lead looks more sustainable—and points to important differences in the two oil majors' strategies and performance.

Enlarge Image

Reuters

Does Chevron offer gold for investors?

In broad terms, Chevron has managed to grow without sacrificing returns. This is no mean achievement when you produce more than 2.5 million barrels of oil equivalent a day, output from existing fields declines at 4% a year and much of the world's oil and gas is walled off.

In 2004, Chevron's oil-and-gas output was less than two-thirds that of Shell. By last year, it was 80%. In its latest strategy presentation given earlier this month, Chevron targeted production in 2017 to hit 3.3 million barrels of oil equivalent, or BOE, a day, which is what Shell produced in 2012. Shell's latest target is to produce about four million BOE a day in 2017 or 2018, which would get it back to where it was in 2002 after years of decline and stagnation. On that basis, therefore, Chevron should keep closing the gap.

And while growth targets from oil majors are often more honored in the breach, Chevron's look more realistic in relative terms. Rystad Energy, a consultancy, estimates that production from Chevron's existing projects and those already under development should be pretty steady out to 2019. That provides a solid base on which to build growth from undeveloped discoveries. In contrast, output from Shell's existing production and projects under development is estimated by Rystad to fall 11% by then.

But in the oil business, quantity is just one part of the equation. The real test is profitability. This is where Chevron has really opened up a gap. Since late 2009, it has earned more net income per BOE even than Exxon Mobil, XOM -0.36% long the industry leader. With regards to Shell, back in 2002 both it and Chevron earned around $5 per BOE, according to IHS Herold, an energy-focused analysis firm. By 2011, the latest year for which IHS has data, Chevron's figure had soared to almost $26, 53% higher than Shell's.

In part, this reflects Shell's gassier profile. Similar to Exxon, Shell has become more of a gas major over the past decade, even as oil's price premium to gas has widened. Since 2004, its oil production has declined by a staggering 27% against a 3% increase at Chevron, according to IHS. Last year, just over half of Shell's output was oil, against more than two-thirds for Chevron.

Shell has similarly lagged behind in return on investment. After its reserves-reporting scandal in 2004, Shell increased capital expenditure heavily. By 2008, it was spending virtually all its operating cash flow in this way, while Chevron was spending only 62%.

A rapid increase in capital employed will depress returns until new investments start generating cash, which can take many years in the case of new oil-and-gas fields. Consequently, Shell's return on average capital employed has languished in the low-teens over the past few years, while Chevron's has been closer to 20%.

Shell is paying shareholders a hefty dividend yield of 5.4% to wait until it delivers growth. Chevron's dividend yield is just 3.2%. Add in stock buybacks, though, andDeutsche Bank DBK.XE -4.35% analyst Paul Sankey estimates the two companies will yield about the same in terms of total cash return this year. Good growth prospects and a decent payout? In this business, that almost deserves a medal.

Write to Liam Denning at liam.denning@wsj.com

Long CVX!

Chump

BBL & Portfolio Summary

After selling CLF a few weeks ago (before they fell off a cliff, luckily), I've been looking at the raw materials sector for a replacement.  BHP Billiton Group hit my radar due to the nice yield of around 3.6%, and what looks to be a very undervalued share price.  Here is a brief description of the company from Google Finance:

I like having commodities in the portfolio.  Commodity prices are sure to rise as the U.S., Japan, and other countries print money and devalue their respective currencies.  I also like the idea of holding shares of a company based outside of the U.S. for portfolio diversification.

From FAST Graphs:

EPS are continuing to grow, while the share price is well below "fair" value, and the normal PE level for this stock.  The company's dividend history isn't stellar, but pretty good the past several years as shown below:

I chose BBL vs. BHP because they are based in the UK vs. Australia, and do not tax dividend payments to the U.S.  Thus, in my IRA, I get the full 3.6% yield.  Morningstar has BBL ranked as a five star selection, here is their summary of the basic materials sector:

Thus, I placed a limit order today for a 1/3 full position.  It filled for $62.59.  I'll look to add to this position in the coming months.

With the addition of BBL, here is a summary of the holdings sorted by the attractiveness at current
 prices, highest to lowest:

When considering the relative valuations and growth prospects, please ignore OHI at the bottom.  As a health care REIT, it should be valued differently (Price vs. FFO), and is fairly, but not richly, valued at these prices.

Since my last update, I've made several changes:  More AAPL and MSFT, sale of CLF, addition of BBL and KMI, and OHI.

That's all for now,

Chump

Chump's Year End Portfolio Summary, 2012

Well, the 2012 is over, and I've updated the Chumpmenudo Hybrid Dividend Growth portfolio.

With all the fiscal cliff drama at year's end, stocks were pretty volatile.  The last trading day of the year saw a nice uptick in the portfolio, and 2013 is off to a good start.

Looking back, I started converting my traditional IRA to what I call a "hybrid" dividend growth portfolio in June - August this past year.  I'm buying two groups of stocks, and following different "rules" for the two groups.  The core holdings are comprised of dividend Champions and Aristocrats, and are stocks I'd like to hang on to into retirement.  I don't have full positions in all of these, but intend to have, and add additional names in the coming years as I approach retirement.

The second group, I call the non-core group, and is also comprised of dividend stocks, but the requirements for this group are less rigorous, and I favor undervalued stocks above all else when selecting holdings for this non-core group.  These stocks I expect to appreciate, and will reduce my positions or sell completely when they reach or exceed fair value.

The goal of the portfolio is to out perform the S&P 500 in all types of markets, and throw off an increasing dividend yield every year.

Here is a summary of the portfolio for December 31, 2012:

Of the 28 total holdings, 12 are core holdings comprising around 40% of the portfolio, and 16 are non-core comprising (with cash) the other 60% of the portfolio.

So how did the portfolio do versus my stated goal/benchmark?  Probably too soon to tell, but so far, pretty good.  Here is a performance summary:

I've managed to construct a portfolio with a weighted average beta of 1.02, about equal to the S&P, but with a superior yield to the S&P (3% vs. 2.12%), and better capital appreciation.  It should be noted, of course, that this is just for the last four months of the year, and is too short a time to draw any conclusions.

I'll continue to monitor, manage, and tweak in 2013, and we'll see what happens.