Deva Panambur, CFA®, CFP® is the founder of Sarsi, LLC. Sarsi, LLC is an independent, fee only, Registered Investment Advisor, serving individuals and institutions. We primarily provide the following services: 1.Financial Planning: Overall financial situation of the client including cash flow, debt management, risk management/insurance, estate planning and tax planning. 2. Investment strategy 3. Asset allocation and risk management 4. Manager/Investment product selection 5. Investment monitoring and reporting.
Prior to founding Sarsi, LLC in 2010, Deva was a Senior Vice President/Partner at Executive Monetary Management (EMM), a wealth advisor with over $2Bn in assets that was a part of Neuberger Berman, before being spun off into an independent firm in 2009. At EMM, Deva led manager selection and due diligence and had joint responsibility for economic analysis, strategy analysis, portfolio management and risk management pertaining to investments of ultra high net worth clients and institutions.
Prior to joining EMM, he was a portfolio manager at the alternative strategies group of Merrill Lynch; a research analyst at Chesapeake Capital Corporation- a hedge fund; and a risk and business analyst at Deutsche Bank Asset Management where he supported various investment groups. He began his career at International Seaports Pte. Ltd. in international project finance in the Far East and the United States.
Deva earned a Bachelor of Technology from the Indian Institute of Technology, India, a Master in International Management from the Indian Institute of Foreign Trade, India, and an MBA from Thunderbird School of Global Management, Glendale, AZ. He has been awarded the Chartered Financial Analyst designation and is a CFP® professional.
He regularly provides expert advisory services to top consulting firms and asset management companies regarding the business and investment aspects of the investment industry. He is an Adjunct Professor of Personal Finance at Montclair State University in New Jersey and in his spare time trains candidates appearing for the CFA exam.
MBA, Finance, Thunderbird (Arizona State University)
BTech, Metallurgy, Indian Institute of Technology
Fee only. Asset based and/or fixed.
Sarsi LLC (“Sarsi”) is a Registered Investment Advisory Firm regulated by the State of New Jersey in accordance and compliance with applicable securities laws and regulations. Sarsi does not render or offer to render personalized investment advice through this newsletter. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part II) and execution of an investment advisory agreement between the client and Sarsi.
Sarsi, LLC Introduction
When deciding on such questions one must evaluate the objective aspects and the subjective aspects. Objectively speaking: An interest rate of 3.5% is pretty low. In addition, if there is a tax deduction for the mortgage (I am not sure with the information you have provided) it could be lower. So, if you can earn better than that on your investments you should invest your inheritance. Over the long run, (27 years certainly counts as the long run) one should be able to earn a better rate of return than the interest rate of your mortgage and in fact, you can create a portfolio whose income can be used to pay part or all of your mortgage payments. (Please contact me if you would like to discuss this).
Subjectively speaking you will have to consider how secure your job/source of income/cash flow is and how disciplined you are about setting aside money for the mortgage payments because you don't want to have to sell your invested inheritance at an inopportune time. The other subjective point to consider is your comfort level having this mortgage- I know several people who don't like having a liability and prefer paying it off even if the numbers say otherwise.
If you have dependents, then having insurance is extremely important. Pure insurance (Term life) is the cheapest form of insurance and if you get it for an appropriate amount and appropriate duration, then it should take care of your requirements. Whole life insurance adds an investment product to the pure life, and you get the benefit of tax deferred (Not tax free- more on that later) investment option. Personally, I am not an advocate of whole life, but I do understand that there are some benefits, the biggest being that it forces you to save, although you can do that using retirement products such as a 401 (K).
To see it makes sense for you consider the following:
1. Based on your numbers, it seems your whole life insurance will give you about 4-5% rate of return over about 30 years. If you think you can do better than that then obviously it is not for you.
2. Taxes: Have you maxed out your 401(K) to which you can contribute $18,500 or $24,500 over the age of 50? If you are self-employed, you can sock away up to $55,000 into retirement products such as a SEP IRA or a Solo 401 (K). These accounts give you the same tax deferred status as a whole life insurance (i.e. if you use it as an investment and not for your dependents- in the latter case there is not capital gains or income tax although there maybe estate taxes).
3. The dividends and cash value you receive from whole life are not taxed up to the amount or premiums you have paid. Anything over that is taxed as ordinary income.
4. Estate planning: Lifetime estate tax exemption is $11.2 MM for the next 7 years and will revert back to 2017 level of $5.49MM adjusted for inflation. The amount is double for a married couple. Your estate does not have to be through a life insurance to derive this benefit- in fact insurance proceeds are included in the estate if owned by the deceased. The point being you don’t necessarily have to buy whole life insurance for estate planning.
5. If you take withdrawals from the whole life then the death benefit is reduced by that amount.
6. Liquidity: Fees in life insurance are usually front end loaded which means you will be penalized if you withdraw or surrender early- moreover, your cash value only accumulates to a meaningful amount over several years. If you need more liquidity then you may want use other options
Congratulations on planning for your retirement early. An in-depth analysis will need more information such as: how much do you plan to save till retirement, your mortgage details, other liabilities, risk factors, dependents, social security, taxes, estate planning etc.
However, on the face of it, just taking your current and expected assets (Without considering any growth until retirement and assuming you will take the pension in a tax deferred account such as an IRA) you have assets of $2.95MM and need to generate $80,000 (Assuming pretax) which comes to about 2.7%. Add in inflation (Long term rates) of 3% means you will have to generate about 5.7% on your portfolio, before taxes, during retirement, to preserve the portfolio value. Historically, over the long term, the average returns of a portfolio with 20% in stocks and 80% in bonds has been about that much. With this allocation, the worst year would have been negative 10%, well within your loss threshold. However, a few caveats- future bond returns are expected to be lower than the past and since this is the average returns, there are several years when the portfolio would be down or below the average and vice versa, which will require some planning and better portfolio construction. You will have to assess your situation when you turn 60 to get the optimal portfolio.
Your relatively large pension payments that occur over 5 years - gives you an interesting opportunity in that you can take relatively more risk with your current 401K and IRA account, within your risk tolerance. The 5 payments implicitly result in dollar cost averaging and give you the opportunity to rejig the portfolio as you near retirement depending on your personal and external factors.
This is a good question. In my opinion, it is difficult to time the market and impossible to do it in a consistent manner. The advantage of an automatic investment strategy such as the one you have in place is that you are making periodic investments irrespective of what is happening in the market and you are dollar cost averaging over time. With this strategy, the disadvantage of buying when the market is up is to some extent balanced by the advantage of buying when the market is down.
So, why not buy when the market is down and not buy when the market is up? The problem with this strategy is that nobody knows if a particular up day will be followed by a down or up day and if a down day will be followed by a up or down day. What we do know is that over time markets exhibit significant momentum (ie up days follow up days and down days follow down days) AND markets are up more often than they are down. So, if you wait for a down day and have a threshold of how much down it must be before you invest, then you will be missing out many up days and once you get in after a down day, on average your down day is likely to be followed by more down days. We have run the numbers on this- please send me an e-mail and I can share the analysis with you.
Of course, I am assuming that you are only considering market movement and are not considering any other fundamental or macro-economic factors when making your decisions.
This is a good question- and the answer seems to surprise many credit card holders. The minimum payment on a credit card balance is usually one of the following: a fixed amount, your balance (if you owe a very small amount) or a percentage of your outstanding balance. Credit card companies require you to at least make the minimum payment due or they will fine you and your credit score could also take a hit. After making the minimum payment, your balance will continue accruing interest (Credit card interest rates are relatively high and are compounded daily) so if you are able to pay off more than the minimum amount due, you should- you will pay off the credit card debt faster, your interest expense will be lower and it could also improve your credit score (Credit scores are impacted adversely if you use a large percentage of your credit limit, paying down debt to a lower percentage of your credit limit improves your credit score)