Tag Archives: Retirement

Retirees Face $1.3 Billion Loss in Wall Street Fraud

It was supposed to be a safe investment.

In small offices across the country, brokers sold a security called L Bonds. The bonds were backed by life insurance policies and were supposed to provide a steady stream of income.

Many buyers were elderly. Now they’re facing catastrophic losses of up to $1.3 billion.

From a report that broke this morning in The Wall Street Journal:

What many of these retail investors didn’t know was that [bond issuer] GWG’s founders and a board director would each use the money to fund and launch their own startup ventures, then move them out of the investors’ reach, according to people familiar with the matter. The roughly 27,000 individuals who bought GWG’s unique debt securities, known as L Bonds, are now facing huge potential losses – for many, their retirement nest eggs.


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The original business buying life insurance policies quickly ran into trouble. So, bond issuer GWG Holdings cast about for another strategy.

It settled on backing speculative startups run by the company’s founders.

That would be reckless enough a thing to do with small savers’ money. But worse yet, the miscreants running GWG quickly moved those assets out of reach of the L Bond buyers.

Once the top executives had taken the assets, they drove GWG into bankruptcy.

The judge overseeing the court proceedings in Houston said he had never before seen a company give up control of everything it owns before seeking chapter 11 protection.

GWG appears to have operated like a Ponzi scheme. Of the $1.26 billion in L Bonds the company sold, nearly two-thirds went to paying off prior bonds.

Meanwhile, the top executives siphoned off tens of millions of dollars in dividends for themselves.

The SEC began investigating GWG as early as 2020. GWG didn’t disclose the investigation to its investors for a year.

In the mean time, it sold another $200 million in toxic L Bonds.

The law generally prohibits the SEC from disclosing investigations. I think it’s high time to change those laws.

Many elderly put their life’s savings into these bonds.

They should’ve known the company was under federal investigation. The government they pay taxes to should never have kept that a secret from them.

It doesn’t help for the SEC to blow the whistle once the money is already gone.

What do you think of this case and how the SEC handled it? Leave a comment at the bottom and let me know.

See you on Monday!

More on markets:

Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

Hedge Fund Giant D1 Loses $7 Billion in 2022

Shadowy Hedge Fund Cash Bankrolls Fight Against Regulation

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: SEC building seal

Robinhood vs. Interactive Brokers: Smackdown!

I’m working on making my own index fund. And it’s proving surprisingly difficult.

The Goal

My goal is to create a portfolio of the highest yielding Dividend Aristocrats. Dividend Aristocrats are blue chip companies that have increased their dividend every year for at least 25 years.

But even being an Aristocrat isn’t enough for your demanding author. I want only stocks with a yield above 3%, so I have some chance of keeping up with inflation.

I call this special group the Dividend Royals.

So which broker should I use to construct this portfolio?

The Contestants

In this corner: Robinhood!

Robinhood is one of the best known brokers today. It took the financial world by storm by offering zero commission trades.

And in this corner: Interactive Brokers!

This stalwart of finance has existed for decades and offers sophisticated tools to active investors.

Who will be the next champion?

Fight!

Robinhood is dead simple. Its intuitive mobile app makes it easy to buy and sell shares of stock, including fractional shares.

And then there’s the feature that made it famous: no transaction fees.

But Interactive Brokers no longer charges fees either in its Lite product. And its Pro offering can get you such great prices on shares that it should be worth the nominal fees if your trades are large.

Robinhood’s simplicity is also its Achilles’ heel. It lacks many of the powerful research and trading tools of Interactive Brokers.

Implementing a Dividend Royals strategy would be manual and painful.

What’s more, if you ever decide you’re sick of Robinhood, it’s expensive to get your money out. Robinhood charges you a usurious $75 fee.

Interactive Brokers charges nothing.

By Unanimous Decision…

Interactive Brokers is a much better choice. Its trading tools are powerful and its fees are even lower than famously cheap Robinhood.

I’m working with Interactive Brokers’ support to find out how to implement the Dividend Royals strategy using their BasketTrader tool. I’ll keep you posted!

There will be no blog on Monday. I’m background acting in an awesome forthcoming show from Netflix!

See you Tuesday. Have an awesome weekend, everyone!

More on markets:

Let’s Make Our Own Index Fund!

Plaintiffs Fight Back in Citadel Lawsuit

Starting a Financial Plan from 0

Photo: “Packerland Pro Wrestling – Roadhouse Rumble” by Ross LaRocco is licensed under CC BY-NC-SA 2.0

If you found this post interesting, please share it on Twitter/Facebook/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Should Anyone Own Bonds?

I used to love bonds. Especially government bonds. Guaranteed income, easy liquidity, and stability in a crisis.

What’s not to like?

But my old flame hasn’t done much for me lately. And I’m not the only one.

The Problem

Bonds have hovered at or below the rate of inflation since 2009:

Just barely keeping up with inflation might be enough, given that I have much riskier positions in stocks, real estate, and tech startups.

But if an investment pays a yield below the rate of inflation, you’re essentially paying someone to hold onto your money. Instead of getting even a modest return, you lose a little of your cash every year, like clockwork.

Today, I own long term treasury bonds and medium term treasury and mortgage bonds. The long term bonds pay 1.73%, and come with a big risk of decline when interest rates increase. Which they’re just about bound to do, given that that they’re are sitting near 0.

The shorter duration bonds pay even less: 1.28%.

What Kind of Return Do We Need to Keep Up With Inflation?

Recent inflation numbers have been scary: over 5% a year. But, if we look at the longer run averages, the picture brightens a little.

Over the last 20 years, inflation has averaged 2.16%. Over the last 10 years, the figure is 1.89%.

I don’t know how long the sudden higher inflation of the last couple of months will last. But it appears that a floor for a return that will keep up for inflation is no less than 2%.

Where Can We Get Our 2%?

The attractive features of government bonds are liquidity, stability, and a modest income. Let’s review a few alternatives, with that in mind:

1) Corporate bonds. Returns aren’t much better than government bonds, at around 1.7%.

2) Fundrise. Love it, but not a good substitute for bonds. Real estate development just isn’t as stable. It’s not very liquid either. However, returns are good. I’ve notched around 7% since I started investing.

3) Single Premium Immediate Annuities. A rather exotic choice. Rates can be good at around 3.5% in some cases. And the income is guaranteed. But they’re not very liquid: there’s a 10% IRS penalty for withdrawal before age 59.5. But if you’re older, they could work well.

4) Dividend Aristocrats. These aren’t just any high dividend stocks. These have a history of paying higher dividends every year for at least 25 years. That’s a surer bet than many stocks with even higher dividends, because those huge payouts may not last.

The yield on some of these large, stable companies is impressive:

ExxonMobil: 6.5%

Chevron: 5.5%

IBM: 4.8%

Consolidated Edison: 4.2%

Of course, the stock prices could go down.

But if you’re buying for income, and the company is large and stable and has increased its dividend of decades on end, you don’t care. You just collect your check and head to the golf course.

What’s more, you can buy a basket of these stocks, rather than just one, insulating yourself from the chance that one of them cuts its dividend.

Wrap Up

Dividend Aristocrats seem like one of the best options to replace the income bonds no longer offer. They are also less likely to fall with higher interest rates.

What do you think the best option is? Leave a comment at the very bottom of the page and let me know! I just might use your idea. 🙂

More on investing:

What Does the Pandemic Mean for Real Estate Investments?

Why I Just Invested in EyeRate, the Best Online Review Tool

What I Learned From an Investor Who Turned $100,000 into $100,000,000

Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?'” by BrookingsInst is licensed under CC BY-NC-ND 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! 

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

This One Trend is Driving Every Financial Market

Regardless of which market we look at, we see a similar trend: skyrocketing prices since the beginning of the pandemic. You can see this in the S&P 500, a broad measure of stocks:

In commodities:

In the increase in real estate prices and the corresponding decrease in capitalization rates (this chart is from Dallas…see similar trends in other cities in the research papers linked in this post):

And even in Treasury bonds (recall that the yield moves in the opposite direction from the price, so a lower yield means a higher price):

Why are all these markets looking the same? The likeliest cause is a huge jump in the money supply. The Federal Reserve has aggressively printed money since the beginning of the pandemic, looking to counter the seismic economic shock. I think this is probably appropriate. In any case, the effect is unmistakable, however you measure money supply.

Here’s how the “monetary base,” or “the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve),” has expanded:

If you look at another definition of the money supply, M1 (“the sum of currency held by the public and transaction deposits at depository institutions”), it looks like this:

And if you broaden your definition of money supply to M2 (“M1 plus savings deposits, small-denomination time deposits (those issued in amounts of less than $100,000), and retail money market mutual fund shares”), you see the same familiar pattern:

Whichever way you slice it, there’s a lot more money out there than there used to be. That money can be used to bid up stocks, bonds, real estate, commodities, bitcoin, Gamestop, or whatever you like.

There is some debate in the literature about whether you can draw a correlation between the money supply and increasing stock prices. This study sounds a cautionary note:

future profits may not change, if interest rates decline at the same time that demand for firms’ products, and thus their sales, decline.

This could be relevant for companies that can’t deliver their products in a contactless manner. But companies that can have been thriving.

In all, it appears that the massive increase in the money supply is driving financial markets of every stripe in one direction: up. Until the Fed changes policy, I suspect the bias is likely to be toward buoyant markets, especially with vaccines coming on line and the pandemic’s end in sight.

Have a great weekend, everyone!

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?'” by BrookingsInst is licensed under CC BY-NC-ND 2.0

What Does the Pandemic Mean for Real Estate Investments?

A health and economic crisis is scaring nearly everyone right now, including investors. Stocks recovered in record time, but what about investments in real estate? Are they doomed, or is the bad news perhaps a bit overblown?

I invest in real estate through Fundrise, which allows me to spread my money across many projects nationwide. I prefer this to the concentration risk I would face in, for example, owning an apartment building in New York City, where a recent rent law change has substantially reduced the value of buildings.

But regardless of how diversified you are, the pandemic is impacting all aspects of life…and business. So I set out today to gain more understanding of how these changes would affect my real estate investments.

The national picture for apartments, which is most of what Fundrise owns, is surprisingly good. Vacancy rates in major markets including Dallas, Los Angeles and Washington DC, all areas where Fundrise has many buildings, are not all that elevated. This squares with my returns in Fundrise, which were over 7% in 2020 despite just about the worst market conditions imaginable.

Indeed, despite the strong and sustained lockdown measures in LA, its vacancy rate is comparable to that of Dallas, an area that locked down a lot less. Dallas, LA and DC all have a vacancy rate around 5%. Only LA is materially above its Q1 2019 vacancy rate, and keep in mind that LA has had a serious housing crisis for many years.

Of these three markets, LA definitely concerns me the most, with higher unemployment. But prices have held up so far.

So, what’s the upshot? National unemployment is up but still not extremely high, and the higher end apartments Fundrise tends to own are less likely to be occupied by those in leisure/hospitality, who may struggle to pay their rent right now. Add that to the fact that more vaccines are being deployed daily, bringing the beginning of the end of this health crisis.

So, I see the outlook for residential real estate investments as fairly bright, all things considered. To sell now in the face of slight weakness and a coming end to the pandemic simply wouldn’t make sense.

I intend to sit tight.

Note: If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

Photo: “Boarded up & masked – 10th Avenue, New York City” by Andreas Komodromos is licensed under CC BY-NC 2.0

My View on Markets in 2021

My main business is investment, and some recent developments have gotten me thinking about where markets are headed this year. An end to the pandemic by Q2 2021 is predicted by multiple models (here and here). We’ve seen a substantial increase in personal income in 2020, largely due to the CARES Act. Much of that was saved and might fund consumption in 2021. More stimulus is likely forthcoming from the new administration and a Democratic Congress.

The combination of an end to the pandemic, increased personal income/saving/pent up demand, and further stimulus seems to set up a great scenario for stocks this year.

Meanwhile, Treasury yields dropped substantially in 2020 despite massive stimulus (and thus borrowing). The same may not occur this year, but suffice it to say the Treasury market seems to be able to absorb quite a lot of new issuance (see page 3 of this document).

My investments are heavily weighted toward equities, and I am expecting a good year. Perhaps we’ll revisit this in a year and see if I was right!