Retirement Answer Man

As you start retirement planning you’ll want to think about using various types of retirement vehicles. This is why we are exploring different asset allocation ingredients in this series. I want you to understand the basics of these investment vehicles so that you can make an educated decision on what to include in your retirement portfolio. 

Today you’ll learn about closed-end mutual funds, UITs, and structured notes. Listen in and learn why it’s important to keep your investments simple. Don’t need to overcomplicate your investments. 

What is a closed-end mutual fund?

The biggest difference between a closed-end mutual fund and an ETF or open-ended fund is they issue a fixed number of shares. Because of this, closed-end mutual funds act more like individual stocks. They even have an initial public offering just like a stock does. Sometimes they will even roll out a secondary offering. Since there are a limited number of shares, that means there is no more money coming in or out of the fund. Closed-end funds also use leverage as a way to improve returns. 

What are the advantages of closed-end mutual funds?

Open-ended funds and ETFs always trade at net asset value, however, closed-ended funds can trade at a premium or at a discount. They aren’t typically purchased at the net asset value. 

Closed-ended funds don’t experience cashflow issues since they have a fixed amount they are investing. They don’t have to sell securities just because someone needs the money. People usually buy closed-end funds because of the distribution yields they payout. But it is important to remember that the high yield is usually due to the leverage they use. Discover the disadvantages of closed-end funds by pressing play. 

What is a unit investment trust (UIT)?

A unit investment trust (UIT) is a fixed portfolio. You’ll get a basket of securities in certain percentages that stays consistent over time. At a predetermined date, this trust matures like a bond and you’ll receive the cash value. The benefits of UITs are the costs and the lack of yearly capital gains. Since the trust matures at a certain time you will only need to worry about capital gains taxes at that time. They are also low in cost due to less management. Discover why I haven’t used UITs and why I really don’t like structured funds by listening.

Check out the Rock Retirement Club

The Rock Retirement Club is our online university that will empower you to rock retirement. The online courses will teach you how to build your retirement plan step by step. You’ll learn how much is enough and when you can retire. In addition to being part of the amazing community of like-minded people walking the same journey, you’ll also gain access to retirement calculators, spreadsheets, and other tools to help you rock retirement.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

PRACTICAL PLANNING SEGMENT

  • [4:38] What is a closed-end mutual fund?
  • [8:31] What are the advantages and disadvantages of closed-end mutual funds?
  • [12:57] What is a unit investment trust (UIT)?

Q&A SEGMENT

  • [19:17] How much is too much for a 5-year plan?
  • [25:03] A healthcare before Medicare question
  • [30:34] Self-funding long term care insurance using your home

TODAY’S SMART SPRINT SEGMENT

  • [37:13] Think about what you can accomplish between now and the end of the year

Resources Mentioned In This Episode

Check out the long term care insurance series by starting here

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Direct download: RAM375.mp3
Category:general -- posted at: 5:00am CST

Retirement planning takes many different forms, but to effectively manage your money in retirement it is important to know the types of investment accounts that are available. This is why I am hosting the Asset Allocation Ingredients series. 

Over the course of this series, we explore what goes into your investment mix. This episode focuses on separately managed accounts. You’ll learn what they are and their advantages and disadvantages. 

Make sure to stick around for the listener questions segment to hear answers to questions from listeners like you. 

What is transformation?

Transformation means a dramatic change in form or appearance. However, there are many transformations we can make in life that aren’t physical. Common life transformations occur when we leave school and enter the professional world, go from single to married life, and of course, from working to retired. 

A transformation can be triggered by a few different things. It could be triggered by a life event, or it could be a gradual change over time, or simply by you looking for a change in your life. Are you working towards any transformations in your life? 

What is a separately managed account?

A separately managed account is a portfolio managed by a third party. Essentially, you are assigning the management of funds to a money manager who is implementing the portfolio that you have hired them for. 

A separately managed account is different from an ETF or mutual fund in that you open an investment account at a firm and the account manager will build the portfolio based on the strategy you choose. It’s like a mutual fund that is completely unwrapped. You own each individual position in that account rather than in a bundle. 

What are the advantages and disadvantages of separately managed accounts?

Some advantages to SMAs are: 

  • You have access to institutional managers that don’t manage mutual funds.
  • You can customize your account by setting restrictions on what is allowed. 
  • You maintain better control of the realization of gains and losses.

There are a few disadvantages:

  • There are fewer options to choose from.
  • The baseline to open an account is higher.
  • Fees are generally higher than other types of accounts.
  • They add more complexity to your portfolio.

Are separately managed accounts a part of your portfolio? What do you like about them?

What’s coming up next on Retirement Answer Man

Make sure to check out the next episode where we will explore UITs and structured notes. After this deep dive into the financial aspect of retirement, next month our focus will shift to the non-financial side of things. You won’t want to miss out on building your non-financial retirement plan.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

WHAT DOES THAT MEAN?

  • [2:10] What is transformation?

PRACTICAL PLANNING SEGMENT

  • [5:49] The basics of a separately managed account
  • [10:08] Disadvantages to this kind of structure for investments

Q&A SEGMENT

  • [14:24] A thank you from Dennis
  • [18:21] How to choose mutual funds
  • [21:38] The tax deductibility of long-term care 
  • [23:52] How did I calculate the discount rate in the Retirement Plan Live webinar
  • [31:11] What do you do with tax liability on a net worth statement?

TODAY’S SMART SPRINT SEGMENT

  • [34:05] Think about a transformation that you are working toward

Resources Mentioned In This Episode

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM374.mp3
Category:general -- posted at: 9:44pm CST

This month we are discussing the ingredients that make up your retirement portfolio--your pie cake. In the previous episode, we took a deeper look at ETFs, and in this episode, we explore mutual funds. 

You probably have mutual funds somewhere in your portfolio, but you may not know exactly what they are. On this episode of Retirement Answer Man, we will take a look at what a mutual fund is so that you can determine if you should have one in your retirement toolbox. 

Is the Rock Retirement Club right for you?

To truly rock retirement you need to do 3 things. 

  1. Build a solid retirement plan that will act as your decision-making framework to help you implement an agile process throughout your retirement. 
  2. Find a safe place where you can get unstuck whenever you get stuck building your retirement plan. You need a place where you can keep your momentum going and you can get answers to the questions you have.
  3. Surround yourself with people who are intentional about living this part of their life. Get inspired by others and inspire others so that you can all rock retirement together. 

You can find all 3 of these things in the Rock Retirement Club. If this sounds like it could help you plan the next chapter of your life check out RockRetirementClub.com.

Have you collected investments and accounts?

As you approach retirement, you may notice that you have a lot of financial clutter. You have probably worked a few different jobs and over time, you may have collected retirement investment accounts in various places. You may also have several types of investments in different accounts. 

When you are approaching retirement this can be a problem. These investments can be a financial mess. The complexity can be confusing and overwhelming. When building a retirement investment portfolio take the time to make it simple. Determine what kind of portfolio you want to build to support your retirement.

What are open-ended mutual funds? 

Mutual funds are similar to ETFs which we discussed in the previous episode. However, in a mutual fund investors pool their money together into an existing portfolio. Mutual funds are priced only once per day based on the net asset value and they are traded only once per day based on that price.

What are the advantages and disadvantages of open-ended mutual funds?

Just like any other investment, mutual funds are neither good nor bad. They are simply a tool to add to your investment toolkit. One advantage of mutual funds is that there is no tracking error since it is priced on the net asset value. They are easy to invest and there is a huge menu of investment options. Open-ended mutual funds are extremely liquid so you can get in and out of them easily. Listen in to hear what the disadvantages of mutual funds are. You’ll also hear me answer several listener questions with Nichole. Press play now.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

PRACTICAL PLANNING SEGMENT

  • [4:38] Have you collected investments and accounts?
  • [7:25] What are open-ended mutual funds?
  • [9:51] What are the advantages and disadvantages of open-ended mutual funds?
  • [19:07] Open-ended funds are neither good nor bad 

Q&A WITH NICHOLE

  • [21:52] How to use a set portfolio to build your pie cake?
  • [26:41] Should your withdrawal strategy change if you don’t have kids?
  • [30:37] What to do with a 457B plan?

TODAY’S SMART SPRINT SEGMENT

  • [34:36] Question what you are doing--what else could you be doing?

Resources Mentioned In This Episode

Episode 370 - The recent episode with Fritz Gilbert

Episode 372 - Start here if you want to learn more about building your pie cake

Episode 363 - The beginning of the Let’s Get Physical health series

BOOK - Atomic Habits by James Clear

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM373.mp3
Category:general -- posted at: 5:00am CST

If you have listened to this show for a while you know that I like to create a retirement withdrawal strategy based on the pie cake. However, we haven’t discussed what goes into the mix. 

Over the next several episodes, we’ll dive into the details of asset allocation. You’ll learn a bit about ETFs, mutual funds, separately managed accounts, and UITs. On this episode, in addition to answering listener questions with Andy Panko from Retirement Planning Demystified, you’ll learn about ETFs and their pros and cons. 

Building your pie cake

In retirement, your portfolios need to reflect when you plan on spending those funds. I separate these portfolios into what I call the pie cake. The basis of the pie cake, is of course, the plate. Your plate will contain your contingency fund and emergency fund. The first layer of your pie cake contains the money that you will use to fund your life over the next 4-5 years. The next layer will contain funds that have a different asset allocation. It may contain funds that are more of a mix of stocks and bonds. In your last layer, you have your long-term assets which will consist mainly of stocks. 

What are the ingredients of the pie?

Now that you have the cake set up you’ll need to consider what you’re going to put into each pie. Each layer of the pie cake is different and must be made separately. You’ll want to consider what ingredients you want to add.

How many ingredients do you want to have in your mix? I like to have as few ingredients as possible. Try adding complexity to your ingredients by diversification rather than simply adding more ingredients. What would you prefer in your pie--simple ingredients or complex ones with names you can’t pronounce?

What is an exchange-traded fund?

An exchange-traded fund (ETF) is an instant portfolio. It is different from traditional mutual funds in that an ETF trades like a stock--you can buy call options or put options. They can be highly managed or not depending on what you buy, so pay careful attention to the fees attached. 

One unique mechanism ETFs have is that the managers buy stocks that represent the portfolio you are trying to match. They track very closely to the net asset value. Learn more about ETFs by listening to this episode of Retirement Answer Man--make sure to stick around for the listener questions with Andy Panko.

What are some advantages and disadvantages to ETFs?

ETFs aren’t all good or all bad. They have their pros and cons. One advantage to an ETF is that you have an instant portfolio. Another advantage is the clarity. You know what is inside the fund at all times. They are also transferable between different brokerage houses and are quite tax efficient. 

On the flip side, if you buy an ETF that is focused on an index you may get less diversification than you think. So make sure to dig under the hood a bit to understand what it is that you are buying. ETFs can also be more expensive if it is more actively managed. Press play to hear the difference between an organic and manufactured ETF.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

PRACTICAL PLANNING SEGMENT

  • [1:50] How to build your pie cake
  • [3:23] What ingredients do you need to create your pie?
  • [7:48] What is an exchange-traded fund?
  • [11:28] What are some advantages and disadvantages to ETFs?
  • [15:31] There are organic and manufactured ETFs

Q&A SEGMENT WITH ANDY PANKO

  • [19:23] Tax planning in retirement
  • [23:40] Can you use one spouse's HSA to pay for the other spouse’s medical expenses?
  • [26:55] How to balance retiring with college expenses ahead of you
  • [31:30] Roth conversions and the pro-rata rule
  • [38:32] Andy gives me some tax advice
  • [42:28] Can I recommend a First Pen?

TODAY’S SMART SPRINT SEGMENT

  • [43:45] Take a look at your portfolios and ask yourself if they are too complex

Resources Mentioned In This Episode

Taxes in Retirement Facebook group

Retirement Planning Demystified on YouTube

BOOK - Thinking in Bets by Annie Duke

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM372.mp3
Category:general -- posted at: 5:00am CST

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