Stellar Capital Management, LLC
Stephen Taddie is co-founder and Managing Partner of Stellar Capital Management. His primary investment responsibilities involve establishing the firm's economic outlook and forecast and using that research to provide input to the Investment Committee regarding asset allocation, sector, and industry weighting decisions for stocks, and yield curve analysis for bonds.
Stephen has over 30 years of professional experience in the investment field. Beginning his career as a Merrill Lynch Financial Consultant in Arizona, he finished his brokerage industry tenure in branch management with Prudential Securities on the East Coast. In the early 1990's he established a Phoenix, Arizona branch office for a mid-sized investment advisory firm, and in the late 1990's established S.J. Taddie, Inc., Investment Counsel, prior to co-founding Stellar Capital Management in July of 2000. He has worked with a select group of clients ranging from publicly traded corporations, government entities, and Native American Indian Tribes, to high net worth individuals and families across the country. He is frequently asked to speak on economic and investment management trends, has authored numerous articles and has often been quoted on the same subjects.
Stephen is a member of the National Association for Business Economists (NABE), a Panelist for the NABE Outlook (National Forecast) and the NABE Financial Industry Roundtable, the Western Blue Chip Economic Panel, the Arizona Blue Chip Economic Panel, and a member of the Arizona Legislative Finance Advisory Committee. He is a member and Past President of the Arizona Economic Round Table, a member and Past President of the Central Arizona Estate Planning Conference, a member of the CFA Institute and the Phoenix CFA Society, and an Arbitrator for FINRA. He is a past member of the Economic Club of Phoenix, the Western Pension & Benefits Conference, Arizona Town Hall, and the Madison School District Financial Oversight Committee. He has served on the Executive Board of the Desert Botanical Gardens Foundation, the Advisory and Executive Boards of the Foundation for Burns & Trauma, the Executive Boards for the Foothills Foundation, the Phoenix Camelback Rotary Club, and the Finance Committee for the Desert Botanical Gardens. He has also volunteered with Junior Achievement and coached youth sports teams.
Stephen holds a Bachelor of Science degree in Business and Economics from Lehigh University, and a Master of Business Administration from the University of Phoenix. He has earned The Certified Business Economist™ (CBE™), which is the certification in business economics, and data analytics developed and owned by the National Association for Business Economics, and the Certified Financial Manager (CFM), which is the certification in financial management issued by the Merrill Lynch Institute, Donald T. Regan School of Advanced Financial Management.
BS, Economics, Lehigh University
MBA, University of Phoenix
Assets Under Management:
Percent of assets managed
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in newsletters, articles, or responses to questions, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your specific situation. Due to various factors, including changing economic or market conditions and regulations, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information serves as the receipt of, or as a substitute for, personalized investment advice from Stellar Capital Management, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Please remember that past performance may not be indicative of future results. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.
In my opinion, there are three types of risk involved when dealing with bonds; credit risk, liquidity risk, and interest rate risk.
Are US Treasuries free of credit risk? Most likely, as a US investor, it is the best credit one can get, as if a US Treasury bond cannot make a required interest payment, or pay principal upon redemption, it would be catastrophic for the exchange value of the US dollar, and catastrophic for the US and global economy. Many other things would go horribly wrong in short order should the US default on its debts.
Are US Treasuries free of liquidity risk? Most likely, due to the US currency being a global reserve currency and sheer number of bonds traded during a normal day. Something would have to change with regard to credit (mentioned above), status as a reserve currency, or lack of US Treasury bonds on the market to create liquidity risk.
Are US Treasuries free of interest rate risk? No. As one goes further out in maturity to capture yield, the interest rate risk on any fixed rate bond increases. An investor buys a specific coupon rate for a period of time when they buy a fixed rate, fixed maturity bond. If longer-term interest rates increase, the current value of a longer-term bond decreases, and if longer-term interest rates decline, the current value of a longer-term bond increases. This relationship is based on the relative value of the interest rate the investor bought versus the interest rate that could be bought presently on similar maturity, similar quality bonds in the open market.
In my opinion, interest rate risk is where investors should focus their efforts when dealing with US Treasuries.
A fourth risk would be currency risk, but that would primarily apply to foreign investors, or US investors evaluating portfolio performance via some measure of comparative global purchasing power.
Employment and retaining funds in a 401(k) plan are related issues, but not the same issue.
Ceasing employment means that you are not earning any more money from the employer who is typically also the plan sponsor, so you cannot make new contributions to that plan from payroll. If your account value is over $5,000, you may keep the money in the plan as long as you would like. There is a law that states a plan sponsor can force an ex-employee/participant out of the plan if their balance is under $5,000, and that level could change in the future. If that is your situation, the plan will contact you regarding available options. If you have accepted (or will be accepting) employment with another firm that offers a 401(k) plan, you can likely roll your current 401(k) account to your new employer's plan.
When you leave employment, the vesting period for employer matching contributions stops. This means that any matching contributions not already vested to you are retained by the plan to be distributed amongst remaining participants, or used to offset the employer’s future matching contributions to the plan. Your own contributions always remain yours, and are not tied into the vesting program.
There are a couple of gotchas one must be aware of: 1) If you have an outstanding loan from the plan, either pay it off, roll your current 401(k) account to your new employer (where they offer 401(k) loans), or you will end up declaring the borrowed amount a distribution from the plan. This means that you may have income tax liability and possible penalties for taking an early distribution. 2) If you are considering rolling your 401(k) plan to a rollover IRA, be aware that while tax treatment is the same, protection from creditors is not. IRAs are governed by state law while 401(k)s are governed by ERISA, a federal law that offers great creditor protection. Some states offer similar protection, others do not. Just know where you stand. 3) The allowable age to withdraw funds may be lower in the 401(k) plan than an IRA. So, if distributions are in the near future for you, check this out. It may make a difference for you.
These are the major items, and the things that trip most people up as far as I’m concerned.
We believe the Federal Reserve (Fed) has been overly cautious in the face of unchanged fiscal policy and ongoing global challenges. After a December, 2015 trial balloon increase in the federal funds rate, the Fed increased rates again this December. They also telegraphed tighter monetary policy, with the prospect of two to four more increases in 2017. These increases will eventually impact money market interest rates, which in turn will eventually increase earned interest income for savers. More immediately, it will increase interest rates on debt tied to LIBOR or prime rates, increasing interest expense for borrowers. Longer-term interest rates will be more influenced by demand for funds, supply of bonds, and inflation expectations.
While it has been a bumpy 35-year decline in longer-term interest rates, it has been an unmistakable trend. When a trend of that length and importance changes, one has to go back to the so-called drawing board to chart the path forward as existing cause and effect relationships will be altered. One relationship that will not change is how rising interest rates affect the price of bonds. If we are at the beginning of a range-bound trend in longer-term interest rates, bonds lose some of their investment luster. If we are at the beginning of an uptrend in longer-term interest rates, long-term bonds could become one of the worst investments on the planet.
Much depends on the capability of your old firm’s 401(k) provider. Some will allow in-kind distributions to qualified accounts, others will not. Some depends on the capability of the selected custodian for your IRA. In your case, most custodians can hold any individual security, however, if there is no real market for the stock or bond in question, it may present a problem. If you were holding a packaged product (mutual fund, ETF, private partnership, etc.), your planned IRA custodian may not have proper agreements in place to hold the asset.
Make two phone calls; 1. To the 401(k) provider to see if you can do an in-kind distribution, 2. To the planned custodian for the IRA to see if they can hold and trade in the future, those assets you want to have distributed. If you get two yes's, you are good to go.
If you must take cash, most any “brokerage” firm would be able to provide a solution for you to invest in individual stocks.
Nothing says you have to withdraw the money from the 401k plan. Couple of options for you: 1. You can leave it in the 401k plan, invest it there, and simply take regular withdrawals from the 401k, which avoids the immediate tax impact on the $60k. If it is a well-run and cost-effective 401k plan, that may be your best choice. 2. Depending on your state of residence, it may make sense to “rollover” the $60k to an IRA (individual retirement account), and take regular withdrawals from the IRA, which also avoids the immediate tax impact on the $60k. BUT, depending on your state of residence, you may have better creditor protection leaving it in the 401k which is governed by ERISA than rolling it to an IRA which is governed by state law.
Assuming that you are not going to withdraw the entire $60k and spend it in the first year, in either of the above-mentioned alternatives, you have some options. One of the biggest risks in investing money that will be gradually withdrawn is that volatility does not play to you favor. Meaning that at the very time you are withdrawing funds, the investment value has ebbed as well. Do that for too long, and you run out of money pretty fast. Positioning the investments to generate regular income, reduces that risk to an extent, because you reduce the dependence on appreciation to make ends meet. Another thing to consider is life span, as that will determine how much you should withdraw each year to balance the withdrawals to last a life time. The actual investments chosen will depend on your risk profile, what else you have invested, how much you plan to withdraw each year.
Hope this helps.