MIKE:  Good morning and thank you for listening to Decker Talk Radio’s Protect Your Retirement.  A radio program brought to you by Decker Retirement Planning.  This week we’re discussing risk in your portfolio, risk being a mathematical term.  How much risk are you really taking?


MIKE:  The comments on Decker Talk Radio are the opinion of Brian Decker and Mike Decker.


MIKE:  Good morning everyone, this is Mike Decker with another episode of Protect Your Retirement, a radio program brought to you by Decker Talk Radio.  We’ve got a special guest, Brian Decker, from Decker Retirement Planning, a safer approach to retirement.  Brian’s got offices in Salt Lake, in Kirkland, Washington, in Seattle, Washington, so we’re very fortunate to have him on the show today.  And as promised from a continuation of our show last week we’re going to be talking about the options for risks.  So Brian, would you say people should be invested in the market, or is it just too crazy and just, being sarcastic here, put your money in a mattress and hide for the bunkers.


BRIAN:  Well it depends.  We’re mathematical firm at Decker Retirement Planning and if the assets of the- Let me give you an example.  Let’s say that a client has 800,000 dollars in retirement at age 65, they have their social security, they have a pension, and they only need, saw, 6,000 dollars a month to age 100.  Then, they might not need any risk at all.  They, mathematically, might be able to get $6,000 a month with no exposure to the market.


BRIAN:  But let me give you another scenario.  Does that make sense what I just said?


MIKE:  No.  No exposure to the market, are you talking, like, money markets you can’t live off of, you don’t make anything from that.


BRIAN:  Stock market returns are the highest asset returns, and some clients don’t need it.  Let me give you this scenario again.  Let’s say Decker Talk Radio listeners that you’ve got, you’re 65 years old, you’ve got $800,000 in assets and let’s say that you have two nice Social Security incomes of a couple thousand a month, plus a couple thousand a month in pension, and you only need $6,000 dollars to live on. Now you’ve got $800,000 that is icing on the cake.


BRIAN:  The returns from that $800,000 don’t have to be at-risk returns.  In those situations, we ask our clients, do you want to take risk or not?  Most clients, I’d say, Mike, 80 percent of our clients, want to take risk. 20 percent of our clients don’t like risk, have never liked the stock market, and so they have the priceless option of having their investments working for them, but they don’t have to have any exposure to the stock market.


MIKE:  So when you’re saying exposure to the stock market, you’re saying that it could go up or down.  Full exposure.  Right?


BRIAN:  What I’m saying is, they could have principal-guaranteed returns for the rest of their life with no stock, bond, mutual fund, I’m sorry: stock, mutual fund, ETF exposure for the rest of their lives.


MIKE:  That’s phenomenal.


BRIAN:  Yeah.  And it’s a priceless option available to a few people who have enough income streams.  Let’s say they have rental real estate of three or four thousand a month, plus another $2,000 each from both spouses, now they have $8,000 a month before they even start to look at their investments.


BRIAN:  So those people have the option.  Now let me give you another scenario.  Let’s say that there’s a single person, age 65, twenty-five hundred a month from Social Security, and $800,000 to invest for the rest of their lives.  Now that person, if they want no stock market exposure, I hope that they can live on $4,000 a month because, if they want $6,000 a month, then they have to have stock market exposure to get the returns higher.  So our approach as distribution planners is mathematical.


BRIAN:  We have the distribution spreadsheet showing all our sources of income and we’re calculating for our clients how much money they can draw for the rest of their lives.  Bankers and brokers don’t do this, most people out there are just guessing on how much money they can draw based on historical returns and that guesswork goes out the window when the markets get creamed every seven or eight years, and we’re in year nine of a seven-eight year market cycle.


BRIAN:  So, this is a reason to come in a see us at Decker Retirement Planning in Seattle, Kirkland, or Salt Lake, so you can do the mathematical calculations to find out what your options are.  Maybe you don’t need to take any risk, maybe you need to take some risk.  By the way, Mike, I’ve never met someone who we added risk to.  Most of the time, people are taking way too much risk.


MIKE:  Yeah.  You do see that a lot.


BRIAN:  And the bankers and the brokers with their pie chart, you can’t know how much you can draw.  You’re guessing.


MIKE:  So come in and see us. Whether you’re currently retired or within five years retirement, we’ll gather your information and reach out to you to schedule a time to visit one of our offices in Salt Lake, Seattle, Washington, or Kirkland, Washington.  And we’ll go from there.


MIKE:  But, okay, so Brian, for most of us we fall into the category that we should take some risk and gain the returns, right?


BRIAN:  Yes.  So let me jump in, this a great part of what we do as fiduciaries.  By the way, bankers and brokers aren’t fiduciaries and so they are paid to keep 100 percent of your money at risk, in bond funds and stock funds, that’s how their get paid, that’s how they get paid.  What we do is, typically, our clients they have about 75 percent of their money risk-less, 25 percent of their money, around, 25, 30 percent of their money in the stock market.  How, and we’ve talked in past radio shows about the options that are risk-less.  Principal-guaranteed options.


BRIAN:  Now we’re going to focus today’s shows on all the risk options.  So this is a part of the planning that we do with our clients, where we have a sheet that lists all the different principal guaranteed options.  All of them.


MIKE:  And for those just tuning in right now, we’re diving into some details about risk options you have, and you’re listening to Brian Decker, who’s a fiduciary and the owner of Decker Retirement Planning, out of offices in Kirkland, Seattle, and Salt Lake.  Brian, can we go through- can we take this as just a very simple approach and just let all the options be on the table and then we can kind of pick each one apart so people can understand the different investments?


BRIAN:  Yeah, not only are we going to do this here, but this is actually what we do in our meetings with clients. We want our clients to choose, but eyes wide open.  We want them to know the good and the bad of every risk category.  So let’s go through…


MIKE:  Let’s just list them all right now.


BRIAN:  Okay.


MIKE:  ‘Kay.  So, the list we have together of anything that would qualify as risk, which is stock-


BRIAN:  We define risk as principal that is not guaranteed.


MIKE:  Exactly.  It can go up or down, based on the stock market.  It’s got exposure.


MIKE:  So what we’ve got, we’ve got variable annuities, bond funds, ETFs, there’s oil and gas partnerships, stocks, foreign exchanges, or foreign exchange, there’s futures or options in trading, you’ve got commodities, you’ve got mutual funds, and you’ve also put real estate on here and that’s the one that’s a bit interesting for real estate.  Can you explain why real estate technically is not a principal guaranteed type of investment?


BRIAN:  Yeah, ask millions of people that lost tons of money in ’08.  So we’re going to cover the good and the bad of all of these categories and I think, Mike, actually we’re going to take the whole radio show on this.


MIKE:  Excellent.  Shall we start with the worst?  The worst?  The variable annuities.


BRIAN:  Yeah.  Variable annuities are the worst things on here.  We want to warn people out here that if your banker-broker is trying to tell you to buy a variable annuity, we hope to perform a community service here and save you many thousands of dollars by telling you what a variable annuity is.  The come on, the sales pitch, is, hey Mike, here’s a way that you can invest in the stock market and have a guarantee.  Well, what they don’t tell you is you have to die to get that guarantee.  It doesn’t benefit you in your life because Mike, when you die, you get the high-water mark, quote unquote.


BRIAN:  What that means is, in the years that the banker, broker, mutual fund companies, and insurance companies are just draining you in amazing fees, they will give you the high-water mark when you die.  What that means that in the lifetime that you own that investment that, if you die, when you die, while you hold it, the highest point in value if what they’ll give back to you.  Let me tell you why that is not a good guarantee and why that’s not a good deal.


BRIAN:  First of all, the banker or broker gets paid eight percent commission right up front, typically, around eight percent when, sometimes its higher, sometimes it’s lower.


MIKE:  Now, they don’t always disclose that, because it doesn’t come out of your principal, it’s just kind of a [OVERLAP]


BRIAN:  It does, it does come out.


MIKE:  It comes out the principal?


BRIAN:  Yeah.


MIKE:  Oh wow.


BRIAN:  And they, yeah, they don’t disclose it, because if they did, well, there’s a saying in the business that variable annuities aren’t bought they’re sold.  Meaning that if you really did know all of the expenses going into it, you would never buy them.  No, I was going to say no thinking person would ever buy them.  I’ve never met someone who was happy with their variable annuity and was totally informed, full disclosure on the purchase.


MIKE:  The clients that you’ve talked to that have variable annuities that were sold to them, they just didn’t know what was really going on at the time, right?


BRIAN:  Right.  Variable annuities is where the banker and broker gets paid around eight percent commission right up front.  He gets paid every year you own it.  The insurance company gets paid every year you own it.  The mutual fund companies get paid every year you own it.  Three layers of fees that typically add up to five to seven percent before you make a dime.  Because of all the fees, they lag the market when the markets go up, and then go down more than the markets when the markets go down, because of the fees.


BRIAN:  There was one company that I won’t name that I looked up the twelve-month trailing return for the money market, now I did this up for a reason, to see what the fees were.  The money market, if you stayed in the money market for the past 12 months you would lose 7.5 percent and the money market was paying 0.5.  So what does that tell you?  That’s eight percent in fees.  Eight percent.  We want to warn Decker Talk listeners to stay the heck away from variable annuities.  The come on, and we’re going to go through all these asset categories-


MIKE:  Okay wait, that’s huge.  I mean, are you going to pay a broker eight percent management fee?  That would be a-


BRIAN:  People do it all the time.  Because they’re for a lagging approach, though.


MIKE:  Right.  This is an aggressive investing.


BRIAN:  Now, Elizabeth Warren and the DOL are trotting out new- Oh, by the way, June, I think it’s June ninth, the DOL comes out and has a starting point for more full disclosure and variable annuities and non-traded REITs are, in my opinion, the reason, because bankers and brokers are making eight to twelve commissions on those and the poor consumer has no idea they just got bilked, fleeced, from their banker or broker.


BRIAN:  It happens all the time and the DOL is rolling out more transparency and more disclosure so that people can make a better decision.  But variable annuities, picture an asset allocation pie chart of mutual funds that you can choose from with huge fees and a promise to pay you the high watermark when you die.  It’s not a good deal It’s not a good deal.  It’s a good deal for the banker.  It’s a good deal for the broker.  It’s a good deal for the mutual fund companies and it’s a good deal for the insurance company.  The investor gets fleeced on variable annuities in our opinion.


MIKE:  Alright, well let’s move on.  Should we do bond funds next?


BRIAN:  Yeah.  They’re the second worst on this page.


MIKE:  Yeah, we’re just, we’re going worst to the best, but bond funds, this one’s interesting to me, because there’s the rule of one hundred.  Which, for those that don’t know that rule of one hundred states that if you’re 60 years old you should have 60 percent of your assets in bonds or bond funds.  Right?  It just goes there 70 percent, 70 years old, 70 percent or so.  It’s just supposed to be your safe money.  And safe money is defined as it’s not supposed to go down.  But bond funds, they can go down.  They’re different than a bond itself and I think there’s some deception here on why, how people use bond funds in the correlation with the rule of one hundred.  Brian, do you see this a lot with portfolios?


BRIAN:  Yeah.  Okay, so let’s talk about bond funds.  Bankers and brokers will tell you to put your bond funds, to put your safe money in bond funds.  Bond funds have, make money when interest rates go down.  Interest rates have been going down from around 1980 when the 10-year treasuring hit around 16 percent.  Right now the 10 year treasuring is at 2.3.  There’s only been one other year that the 10 years when below two percent was last year, May of last year it hit 1.4.


BRIAN:  When interest rates on the 10 year treasuring are yielding around two percent it’s at or near record low interest rates.  So that’s a problem in two ways for investors.  Again, our approach is mathematical on bond funds.  When interest rates are at or near all time record lows it makes no common sense to us at Decker Retirement Planning to use the rule of one hundred and say that, if you’re 65 years old you should have 65 percent of your money in bonds or bond funds.  Now, with a little sarcasm, let’s inject some common sense and say it this way.


BRIAN:  We don’t think it makes sense to put 65 percent of your money in assets that are paying you almost nothing.  Almost nothing.  But the bigger problem isn’t the low rates when it comes to bond funds.  It’s called interest rate risk.  Interest rate risk is losing principal when interest rates go up.  So, from- in 1994 the 10-year treasury went from six to eight percent in one year.  Interest rates went up.  The average bond fund, according Morning Star in 1994, lost 20 percent.  In 1999 the 10 year treasury went from four to six percent.  Interest rates that year went up.


BRIAN:  The average bond fund that year lost also around 17 percent.  If we go from where we are to point to back up to around 4 percent, that’s a hit to principal of around 15 to 20 percent on what bankers and brokers are telling you is their safe money.  When we mathematically know that it’s not safe.  When interest rates go up, so right now I’m going to say the same two things differently.  Interest rates right now are at or near all time record lows.  Interest rate risk is at or near all time record highs.


BRIAN:  So for a banker or broker to tell you to put your safe money in bond funds when interest rates are time record lows, we feel at Decker Retirement Planning, we feel that that’s malpractice.  It’s financial malpractice, mathematically doesn’t make any common sense.  There’s a slide, I wish we could show the radio listeners, Mike, that slide of why we expect interest rates to go up.  There’s a very tight correlation between the CPI, the consumer price index, generally measure inflation and interest rates, and the monetary base, or the money supplier, what the fed prints and puts in circulation.


BRIAN:  If they could see this chart, I’ve got it memorized, it’s in my head, fro 1960 to 1975 the fed printed what used to be a lot of money back then.  And, although not at first, interest rates wiggled around for 5, 7 years, and then they sky rocketed.  Interest rates sky rocketed until Paul Volcker, ’80 to ’82, got in front of interest rates and got things back under control, where CPI and the monetary base track together.


BRIAN:  They track together for several years until 2008, when the monetary base takes a hockey stick spike and goes straight up, and that was due TARP QE1, QE2 where we now have gone from 8 trillion to 20 trillion dollars in our monetary base, or money supplier.  So, we have yet to see interest rates spike back up, but they will, and we want to warn people not to put their safe money in bonds and bond funds, there’s other options that have no, zero, interest rate risk.



BRIAN:  Most people don’t know that there’s some principal guaranteed accounts that have averaged six and a half percent for the last 15 years and the best ones, last year we had one that did over nine percent on a principal guaranteed account.  They should come in and know about this.


MIKE:  Absolutely.


MIKE:  So we look forward to seeing you then and showing some options that your current banker or broker are obviously not telling you, because you probably would have done this as opposed to a bond or a bond fund that’s making next to nothing, it seems like these days.  And just a quick recap, as well, you’re listening to Protect Your Retirement on Decker Talk Radio and Brian Decker, the owner and operator of Decker Retirement Planning, a safer approach to retirement.  Brian, when we were talking about bond funds it kind of reminded me about the Titanic.  Did you hear about this?


MIKE:  There are recent studies that have shown that the Titanic, before it even set sale, had an internal fire that weakened the ship, but because of all the pomp and circumstance they let it set sale anyway.  Had that been addressed, they Titanic may not have sunk.


BRIAN:  The unsinkable Titanic.


MIKE:  But there was a fire that weakened it before it even set sail, that’s kind of like investing in bond funds when you know interest rates are at all time lows.  I mean, it’s like the ship sunk before it ever set sail.


BRIAN:  Right.  I don’t know anyone else that’s spouting this information, except for, who’s the guy from PIMCO?


MIKE:  Bill Gross.


BRIAN:  Bill Gross.


MIKE:  Oh he’s at Janus, now.


BRIAN:  Is at Janus now, use to be at PIMCO, one of the smartest guys that, in the world when it comes to bond funds.  You would think that Bill Gross would be selling bonds, recommending bonds, because that’s his life, that’s his professional life.  No.  We have an article last year, Barron’s article, April of last year, where he was interviewed and he gave four warnings that were stark.  One is that interest rates are kept artificially low right now, by the central banks around the world.  Number two, interest rates eventually will go up.  Number three, people who own bond funds will lose a lot of money, and number four, you are currently not paid for the risk that you’re taking today.


BRIAN:  That was a Bill Gross interview, April of last year in Barron’s.  So, I think we’ve covered variable annuities, why we don’t like them, hate them, call them a scam, I mean as strong a language as can possibly say to warn people to stay the heck away.


MIKE:  Can we shed some light on some maybe better options.  We’ve done the two worst of the worst, let’s go to-


BRIAN:  I think that’s going to take a lot of time.  I think we should just shoot the ducks that we just want to get rid of right away.


MIKE:  [LAUGH] alright.


BRIAN:  Okay, we want to get rid of variable annuities and bond funds right away as horrible investments today, in our opinion, for any people in retirement or within five years of retirement.  Now Mike, some good ones that I want to spend time on are real estate, mutual funds, stocks, ETFs, I want to spend time on those.  I want to talk about a couple more that I can get rid of pretty quick.


MIKE:  Should we just get rid of the quick ones and then we’ll spend the rest of the show on the good ones?


BRIAN:  Yeah.  So let’s talk about oil and gas partnerships.


MIKE:  Can you define what an oil and gas partnership is for those that don’t even know what this investment is.


BRIAN:  Yeah.  It’s master limited partnership, or it’s an LP limited partnership, and imagine, Mike, you and I down in Texas we hang out our shingle Decker oil and gas wildcatting exploration company.  So we raise 10 or 15 million dollars and we go out and we explore, explore, explore and we lose all that money, darn, and we send out the apology letter.


BRIAN:  And then we raise on tranche two another 10 or 15 million and we go out, explore, explore, explore, and by the way whenever we- first thing we do, Mike, is we set our salary and compensation, so the investors get net.  So in the first case we tell each other, well, we’re going to make three or four hundred thousand dollars while we explore and wildcat.  So that’s what we make.  We explore, we lose all the money, and then we try second chance, tranche two, we go out, but this time we hit oil.


BRIAN:  Now I’m not exaggerating when I tell you that with master limited partnerships the first thing that we do is that we decide how much oil, how much proven reserves, and when we find out we hit the jackpot, Mike, we have the discussion, do you need houses in other places in the world?  South of France is nice.  South Beach in Miami is nice.  Where else do you need a home?  Do you need Ferraris in those garages and how about a plane?  We spend net, or we spend gross, because we pay out to investors net.


BRIAN:  We saw this with the biggest grossing animated film, ever in the history of animation, Frozen.  Disney’s Frozen was a master limited partnership, it wasn’t energy or wildcatting, but it made huge amounts of money that was spent internally, and what was left over was decided to be paid out net to share holders.  So the first reason we don’t like master limited partnerships, or LPs at all, is because this reason that they pay net.  And there’s no enticement for the internal employees and owners not to spend through the bulk of those gains.


BRIAN:  So that’s the first reason we don’t like Master Limited Partnerships, or LPs.  The second problem that we have is they’re sector specific.  So let me give you an example of what recently happened, Mike, in the last, gosh, probably three years.  In 2015 oil prices were above 100 dollars a share.  In the next nine months oil would crash form 110 down to 29 in May of 2016.


MIKE:  That’s huge.


BRIAN:  Right.  And so, while retirees were getting seven, eight, or nine percent dividend income, thinking that they were really smart, their principal just got cut in half.  And a lot of these I’ve talked to and they say, hey I don’t care about the principal, I’m still getting seven, eight, or nine percent.  That’s putting lipstick on the pig and justifying that they weren’t smart enough to sell.  And it’s not even that.  I’ll give them- no one saw that coming, very few people saw that coming, I should say.  But we want to point out that protection of your principal is very, very important and sectors rotate, they rotate up and they rotate down.  Try to name sector, Mike, of all the sectors out there, that doesn’t cycle.  Can you think of one?


MIKE:  I really can’t.  I mean, if I had to guess anyone, I mean, I was going to, well, my gut feeling was technology, but then the but, the huge burst.   I mean, everything has a cycle.


BRIAN:  Yeah.  Technology hammered people in 2001 and ’02, they didn’t lose 50 percent, the S&P lost 50 percent.  Technology was down over 70 percent in 2001 or ’02.


MIKE:  It’s the surplus.


BRIAN:  How about real estate?


MIKE:  Real estate?  Well, I was going to say Amazon, but Amazon’s hit with the cycle, with the tech bubble.


BRIAN:  Amazon in 2001 and ’02 went from 60 to eight.


MIKE:  It’s- No one’s immune to this circle of life with this.


BRIAN:  No.  Microsoft went from 160 down to 20, but then it split, and Microsoft shares have come back in the last couple years, but for 14 years, from January 1 of 2000 to 14 years later, 12/31/14, Microsoft shares earned nothing.  Even with the dividend.  Nothing.  Nothing to show for 14 years.  Companies, all companies, go through a growth phase, a maturation phase, and a period of decline.


BRIAN:  AT&T, when I joined the business, we called it the grandmother stock, by the way I’m getting off track.  I want to stay on oil and gas partnership, but to finish this on AT&T, everyone needed a phone, it was a slam dunk business.


MIKE:  Utilities.  Utilities are supposed to be safe right?


BRIAN:  Slam dunk.  Pays a dividend, grows, they increase like rents.  They just increase their prices until the invention of…


MIKE:  The cell phone.


BRIAN:  The cell phone.  Destroyed AT&T’s stock.  So we want to point out that every sector, every company’s stock, goes through a growth phase, a maturation phase, and an age of decline.  So when, I want to go back to oil and gas to finish this out.  Sector’s rotate, that’s my point.  There’s a time to generate income, actually let me say that differently.  There’s a way to generate income that doesn’t compromise or put your retirement at risk.


BRIAN:  We insist, mathematically, that if you’re drawing income from principal guaranteed account, you won’t commit financial suicide by drawing income from fluctuating accounts.  When you draw income from a fluctuating account you compromise the gains as the markets go up, you accentuate the losses as the markets go down, and you are doing that by following the advice of bankers and brokers that have you in all fluctuating, at risk investments with your asset allocation pie chart that we strongly feel is against all common sense when you’re over 50 years old.


BRIAN:  One last thing on oil and gas partnerships.  Again, our approach is mathematical.  We grab a calculator and, Mike, we’ve done this in so many other radio shows, play along with me here on this.  Oil and gas partnerships are bought by retirees for the dividend.  So, Mike, would you buy oil and gas partnership dividend A, because it pays three percent, or would you buy oil and gas partnership B that pays five percent, or would you buy oil and gas partnership C that pays seven percent.


MIKE:  I want the most dividend I can get.


BRIAN:  How about 16 percent.


MIKE:  I mean, it seems unrealistic, but if it was a sure thing I’d take it, but…


BRIAN:  Okay, so let’s give you the other part of the information that we’re not telling you.  So we’re telling you the name of the company and the dividend payout.  Decker Talk Radio listeners get this other half.  When you talk about investing your dividends, or investing for dividend portfolio, get this third and most important half, and that’s the dividend coverage.


BRIAN:  So let’s say company ABC has, they pay out a two-dollar dividend and they’re yielding only three percent, but they’re making four dollars a share EBITDA, earnings before interest, dividends, taxes, and appreciation.  Let’s call that Company A.  Company B pays five percent, but their coverage, their EBITDA cash flow, is three dollars a share.


BRIAN:  Company C earns seven percent, but they’re paying two dollars a share in dividends, like all the rest, but their cash flow is as two dollars.  Company, so that’s A, B, C, Company D has nine percent dividend.  It’s EBITDA cash flow is not two dollars, it’s a dollar seventy.  They’re borrowing to pay the dividend.  Do you see how this works?  That’s called dividend coverage and if you don’t know what your coverage is you don’t know the risk that you’re taking, because what happens is one day you wake up, company cash flow has dropped, and they cut their dividend and now your principal is down 40 percent in a week.


BRIAN:  So that’s taking unnecessary risk on something that you should have no risk on.  When you have laddered principal guaranteed accounts like we use to generate your income, you can go through a situation like 2008 unaffected, where you don’t have to go back to work, you don’t have to change your income, and that’s central to how we put our plans together,


MIKE:  If you’re just tuning in right now, you’re hearing Brian Decker from Decker Retirement Planning, a safer approach to retirement.  He’s a great and wonderful guest on our show for Protect Your Retirement.


MIKE:  We’re just going over options that you can have in your risk portfolio and if you’re just tuning in now and want to hear the previous part of this show it is on Decker Retirement Planning dot come or you can go to Google Play or iTunes to catch this show or any previous show that we’ve recorded.  So, Brian, that was a great explanation of [LAUGH] some options here.


BRIAN:  There’s another one, speaking of options, let’s get rid of options really fast.


MIKE:  Are we including futures with that?


BRIAN:  Yeah.  Futures are to commodities, what options are to stocks.


MIKE:  Excellent.


BRIAN:  So I want to take options first.  Stock options are a leveraged way to invest in a company, so why pay 160 dollars a share for Boeing, which is 100 shares is 16,000 dollars, when you can control 100 shares of Boeing stock for 1000 dollars.  That’s a no brainer, right?


BRIAN:  The problem is, if Boeing stock goes down you- I’m not going to take the time to explain stock options here, you have puts that make money as the stock falls, you have calls that make money as the stock goes up, and it is gambling.  I will tell you that I was in training in a regional brokerage firm in Twin Cities in Minneapolis, and I’ll never forget with a 40 people in the class with me, we watched our teacher say, now we’re going to talk, class, about stock options.  And he said, he took his right foot- you know that plate the hides the outlets on the floor?


MIKE:  Yeah.


BRIAN:  He flipped it up with his right foot and he said imagine that’s a rat hole, and he takes his glasses off and his keys and his wallet and his tie and his hat, and he’s throwing everything down the rat hole.  And he said, that is stock options.  He said, I’ve been in the business thirty years, I’ve never seen someone make money in stock options ever, not in a 12-month period not once, ever.


BRIAN:  I have seen people make money in couple of trades, a few trades, only to give more than all of it back.  He said it’s like Vegas and it has, it’s the ultimate speculation.  It’s not investing it’s speculation.  And there was a guy in the Seattle area called Wade Cook, and Wade Cook tried to convince people that investing in stock options was easy, anyone could do it, and he went to prison.


BRIAN:  There was another guy who was advertising how easy stock options are on the television and on the radio.  He’s gone.  These people are liars and they’re deceptive in diminishing the huge risk that stock options are and the damage they do to individual investors.  I can’t say strongly enough that two things are going to happen in retirement: Number one, one of your friends is going to find stock option site and the worst thing that can happen is he makes money in the first couple of trades and he’ll tell you, Mike, I’ve discovered a great way in retirement at my 5,000 is now worth 40,000 dollars.


BRIAN:  You got to do this.  So number one thing I promise you is you’ll have a friend that tells you to invest in stock options, because they have a website that tells him what to do, they pay 800 dollars a month for the website, and it’s golden and it’s just cranking out returns.  So that’s number one.  Number two, they’ll tell you that they’re making money and I hope that you just steer clear and know that now that I’ve been in business 32 years, I’ve never once come across someone who has made money in the stock options market, over a 12-month period.  Not once, ever.


BRIAN:  Last thing, Mike, on this, our company checks everything out.  There was a guy who was from Salt Lake who told us that he had figured it out, he was buying spreads, he was selling calls and puts on Apple Computer, and that generated consistent income and he told us that he’d never had a losing day on his model.


BRIAN:  I was intrigued.  I thought how mathematically that could possibly work, so we put thirty grand of company money in it.  That was in June of 2014.  By December of 2014 I called the guy and said, have you still not had a losing day?  He said, nope, and I said, how much is our 30,000 dollars?  He said it’s worth 120.


BRIAN:  I said, cash me out.  he said, what?  I said, yup, cash me out.  I want to see if the check clears, I don’t believe it.  And the check cleared, we got our money, and then three months later, we got notification from the Securities and Exchange Commission that they shut this guy down and he went to prison.  He’s in prison right now.  We check everything out, but we’re also extremely cynical and skeptical of anything related to stock options.


BRIAN:  Now I hear people on the other end, Mike, saying, what about selling calls, covered call options.  Let me tell you what a covered call option is.  Covered call option is where, if the stock goes down you retain all the risk and you take that hit with the stock, but you’ve cut yourself a dividend that’s supposed to make it feel all better.  If the stock goes up, yes you’ve made your four or five percent, but you’ve given away all the upside.


BRIAN:  There’s one scenario where selling covered calls works beautifully, and that’s a flat chopping market cycle.  In a flat chopping market cycle, like we’ve had in 2014 and ’15 and up until October of ’16, covered calls were spectacular.  But when the market trends higher or lower, it doesn’t work.  It’s sub-optimal.  It’s not a good option.


MIKE:  ‘Kay.  Excellent.  So we got the complicated ones.  We got the worst of the worst.  I think we’ve got, we’re just going to get with some better options right here.  Should we go with commodities next?


BRIAN:  Okay.


MIKE:  Cause you-


BRIAN:  Actually, I want to set the table a little bit, with what we use.  Gosh, can you believe so much time has gone by?


MIKE:  Already 40 minutes into the show.


BRIAN:  [LAUGH] We might take a couple of radio shows going through this.  Hey Mike, let me set the table on risk.  We mathematically measure how much…  We mathematically calculate how much risk a client needs, number one.


BRIAN:  And then, with that risk, we look at all of these options and we look at historical returns and the good and the bad.  So all we care about when it comes to our clients’ risk options are two things.  Number one, we measure all of these based on the two-fold mission statement.  Number one, do they track with the S &P when the markets go up?  And do they protect principal when the markets go down?


MIKE:  Now, they’re not principal guaranteed, but they protect principal.


BRIAN:  Correct.


MIKE:  Can you clarify how that is?


BRIAN:  Yeah. We’re looking for a two-sided strategy, because the market’s two-sided.  The markets go up and down, it’s a two-sided market.


MIKE:  Makes sense.


BRIAN:  We want to have a two-sided strategy, where if the markets are going up we make money, but if the markets are going down we have a strategy to not only protect principal, but in fact have and use models that are designed to make money in up markets or down markets.  That’s the standard that we want to place against variable annuities.  Variable annuities fail, there’s no downside protection, and with all the fees they don’t keep up with the S&P.  Bond funds don’t have a chance.  Options don’t measure up, no downside protection at all.


BRIAN:  Let’s measure all of these with that two-fold standard and we’ll go through this quicker.


MIKE:  Excellent.


BRIAN:  Okay.  Alright.  So when it comes to commodities, Mike, do we invest in commodities?  Yes, through ETFs.  Let’s define what an ETF is.  An ETF is an exchange traded fund.  Exchange traded funds allow a basket of stocks to represent a sector, like GLD represents gold.  All the gold stocks are held in a static portfolio and it goes up as gold goes up and it goes down when gold stocks go down.


BRIAN:  Same thing with oil.  Tinker OIL has an ETF for all the energy stocks.  And it goes up when oil prices go up and are more profitable and it goes down when oil prices go down, etc.  So, what we do at Decker Retirement Planning is we have a diversified two-sided strategy on energy with a mathematical algorithm that as the energy markets go up and down we are able to make money on those investments.


BRIAN:  In 2008 the commodity market did very well.  Oil and energy did well.  So did precious metals, gold and silver, that did well.  So we have a new manager that we’ve been using, Mike, that in the last year, and by the way we look far beyond the last year, but the reason we look in the last year on the commodities side for energy is we want to see how they did in their 2008.  Their 2008 for energy was when the price per barrel per oil went from 110 to 29 and then back.


BRIAN:  So during this period in the trailing 12 months this manager, when oil got crushed, made over 100 percent.  So, we are looking at making money as energy go up and also protecting money and making money as energy and oil goes down.  There’s also a similar two-sided algorithm that’s for gold and silver.


BRIAN:  Now gold and silver, this manager has been around for quite a while, this is very interesting to me.  So Michael, as we talk about commodities, there’s a good wat to invest in commodities.  If you would’ve- This manager started in 2005, so he has a two-sided strategy on gold and silver, on precious metals.  So if you would’ve invested in gold from 2005 to present, you’re average annual returns a little over nine percent net of fees.


BRIAN:  And you would’ve taken a 45 percent hit in previous metals in 2013, ’14, and ’15.  Silver is much more volatile.  Silver, since 2006 average annual return is over seven percent and you took a 65 percent hit when the markets got creamed, precious metals got creamed in 2013, ’14, and ’15.  Now let’s put a two-sided algorithm on gold and silver.  Here’s what you get.  There’s no losses now in gold from 2005 to 2016, because when the markets go up you participate and when the markets go down you don’t take those hits.


BRIAN:  Average annual return with a two-sided model are over 29 percent instead of the buy and hold nine percent.  So, it’s an efficiency that’s out there that if we’re fiduciaries to our clients, which we are, we want us go out there are find the best managers and models, and this is one of them.  So this is a manager and model that we use.  Silver, since 2006, there’s one loss of four percent, instead of a 65 percent loss, and the average annual returns over 49 percent, since 2006.  So on a two-sided strategy that, in our opinion, mathematically makes sense to us as a smart way to diversify in the commodities and to own commodities with an algorithm that was designed to make money in up or down markets.


BRIAN:  The person who has bought and held the commodity markets which are huge, that’s agricultural, like wheat and corn, soy beans, it’s energy markets, it’s precious metals.  The commodity market’s the largest market in the world.  Whoever has bought and held the commodity complex in the last, gosh, 10 years, hasn’t made much money because we’ve been in a deflationary environment and so the average annual returns with the commodities going down in price, or trending down, it’s not been very good.


BRIAN:  Once we have an inflationary environment, commodities are going to perk up again.  Now we at Decker Retirement Planning, we know a lot of people in retirement love gold and silver, precious metals, and want to be investors in energy and oil, but they haven’t figured out how to do it with this two-sided model.  They should come in and we’ll show it to them



BRIAN:  We’ll show year by year how the manager did and mathematically the approach compared to side-by-side to buy and hold strategy.  It’s very important to us to show that we do agree to diversify in the commodities and there’s a right way to do it and there’s a wrong way to do it.   Okay, so the commodity market is a huge market and I want to attach commodities, or futures to commodities.  Mike, any more questions on commodities?


MIKE:  No I think you explained it wonderfully.  Let’s move on to the next one with only about nine minutes left.


BRIAN:  Okay.  Commodities, or futures are to commodities as options are to futures.  Futures are a way to hedge the commodity market.  So, 97 percent approximately of the futures market are hedgers.  Three percent are speculators.  Here’s what I mean.  Let’s say, Mike, you’re Boeing.  You just landed a multi-billion-dollar deal with Japanese Airlines and you’re delivering those planes in five years, or four years.  Ah, three years, what the heck.


BRIAN:  So you’re delivering those planes in three years, Let’s say that your profit margin on those planes are 15 percent.  Well I can guarantee that profit margin evaporates, unless you lock down two things: The material price fluctuation of titanium aluminum, and all the material prices, because if those material prices go up and you haven’t locked those down, your profit margin is gone.  Does that make sense?


MIKE:  Makes sense.


BRIAN:  Okay.  The second fluctuating variable is the exchange rate between the Japanese Yen and the US dollar.  If you don’t lock that down and the Japanese Ye goes up, against the US dollar, also when you deliver those planes you’ve worked for free.  Boeing’s not going to work for free, so they use the futures market to hedge.  And let me give you an example of-


MIKE:  And that makes sense.  I mean you got to do business.


BRIAN:  Right.  They hedge that so that if the Yen goes up that’s a bad situation for them, they want to belong the end in the futures market so that if, when they lock in that price, if the Yen goes up what the amount of money that they lose on the delivery of the planes, they make on the hedge of the foreign exchange.  Okay?


BRIAN:  This is unnecessarily complicated.  Let me cut to the bottom line.  We look at two-sided models that trade futures and we’ve not seen a two-sided model be competitive, yet.  How about that?  We’re taking-


MIKE:  It makes sense for businesses, not individuals.


BRIAN:  Correct.


MIKE:  Like, I know airlines, they do this all the time with gas prices.  Can you imagine an airline trying to operate with fluctuating gas prices?


BRIAN:  They have to hedge.  Because if jet fuel goes up, the profit margins for the airlines are gone.  They have to hedge.  So 97 percent approximately of all the commodity investors and futures investors are using those markets to hedge the product that they either produce or that they worked with.


BRIAN:  Alright, so in the time that we’ve had today’s radio show, we’ve gone through and shot down variable annuities, bond funds, and oil and gas partnerships as common-sense investments for retirees.  We’ve also shot down, because of speculation, any investment in future, no, in stock options, and we do look at managed futures because they do have the volatility.  They should create wonderful returns, we’re watching very carefully for that.  It hasn’t happened, yet.


BRIAN:  In the commodity markets.  Are we investors in the commodity markets, absolutely.  And we gave that offer about taking the fluctuation out of gold, silver, and oil and gas, by having that diversification with a two-sided investment model.  Okay, Mike, let me, we’ve got a few minutes left.  Three minutes?


MIKE:  Yeah.  You talked a little about ETFs, but ETFs, mutual funds, and stocks.


BRIAN:  And real estate.  And foreign exchange.  Okay, let me get rid of foreign exchange.  Foreign exchange is all the different world currencies.  Do we invest in foreign exchange, with our current managers that we have right now, no we don’t.  The volatility in foreign exchange and in managed futures isn’t producing competitive returns, yet.  So we are watching, but it just isn’t there, yet.


BRIAN:  When it comes to mutual funds, stocks, and ETFs, and real estate, that is the core of our investment strategy.  And that’s what I want to spend a lot of time on.  Let’s define some terms here.  Mutual funds are common portfolios where people buy shares of a common portfolio, because they like the manager or the style.


BRIAN:  There’s active and passive mutual funds.  Active managers are, you’re paying for them to find the best stocks and they have a track record of beating the S&P, because if not you would invest passively in indexes that own all the stocks in the S&P 500 or the Nasdaq 100 and you would just own that and the fees go down and you’re buying the index that beats, in the case of the S&P, 85 percent of money managers in mutual funds don’t beat the S&P every year so why not own the S&P every year?


BRIAN:  There’s a big reason.  It’s because the S&P has a bad habit every seven or eight years of getting crushed, and you can’t afford a 30 or 40 or 50 percent hit like 2001 and ’02 and in 2008.  You can’t take those hits in retirement.  So there’s a smart way to invest in the risk markets that go up and down, two-sided risk markets, and the way we do it at Decker Retirement Planning is we have a two-sided strategy and a two-sided market.


BRIAN:  So Mike, I’ve defined the term, I’m going to circle this for the next radio show next week.  We’re going to cover in detail mutual funds, stocks, ETFs, and real estate as the core part of what we do for risk planning.


MIKE:  Absolutely.


MIKE:  So who is taking more risk?  Someone that’s able to make money in up or down markets that has a track record with the managers that Brian and his team are using that have not lost money accumulatively, or someone that’s buy and hold and running this roller coaster.


MIKE:  So come in and see us. We’ll be able to have you in the office, your choice of either downtown Seattle at 2 Union Square, Kirkland Waterfront Carillon Point, both in Washington, or at Salt Lake City at the Wells Fargo building downtown Salt Lake.


MIKE:  We look forward to seeing you then and quite frankly hope you do call in, because chances are you’re taking too much risk.  For more information about Decker Talk Radio or Decker Retirement Planning, go to www.deckerretirementplanning.com for past shows featuring Brian as well as a number of articles and other information that you can be able to compare notes with your current retirement plan.  And special thanks to Brian Decker and all those at Decker Retirement Planning for this show.  Decker Retirement Planning, a safer approach to retirement.  Take care, we’ll see you next week.



Decker Retirement Planning Inc. is a registered investment advisor in the state of Utah. Our investment advisors may not transact business in states unless appropriately registered or excluded or exempted from such registration. Decker Retirement Planning Inc. is an investment advisor registered or exempt from registration in each state Decker Retirement Planning Inc. maintains client relationships. We can provide investment advisory services in these states and other states where we are registered or exempted from registration.