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.
While income investing in a rising interest rate environment is challenging there are few tools that we use that have proven successful:
1. Bonds with "step-up" coupon structures. These types of bonds increase the coupon rate as the bond nears maturity, the initial rate, the magnitude and timing of the coupon rate increases are important and require the adviser to have an educated opinion regarding the future shape of the yield curve to determine which of the various step-up structures is best at this time.
2. Bonds with fixed-to-floating rate structures. These types of bonds offer a set coupon rate for a period of time, then the coupon rate floats at a rate above a specified benchmark (e.g. 3-Month Libor). The drawback is that these types of bonds typically have perpetual maturities. That said, given the right float rate, an income investor may not care. Here again, the initial coupon rate, and the spread of the float above the benchmark is important, and, don't forget about bond quality. You want to make sure the company is around to make payment of those lofty rates in the future....
In this category, I would include preferred stocks, as they behave much like bonds, but are lower on the capital structure of the issuer. The details of preferred stocks are important, such as cumulative or non-cumulative dividends, ordinary or qualified dividends (drives the taxability of the dividends). Preferred can offer fixed, floating, and a variety of hybrid type dividend structures that can fill a void in an income investors portfolio.
3. Stocks. Typically, not something that is first choice for a bond investor, but stocks pay dividends (read income), many dividends have preferential tax treatment, and many typically increase those dividend payments over the years, so an investor's income can rise keeping up with, or beating inflation. The drawback here is volatility of investment value, and this can be a show-stopper for an income investor that is more used to bonds. One has to rembemer that volatility it a two-edged sword; with negative volatility equaling losses and positive volatility equaling gains. Longer term, meaning over 5-10-15 year periods, stock have made a solid contribution to many a retiree's portfoio.
It is typically a combination of the above investments that makes up a successful long-term income portfolio.
Hope this helps,
With short-term interest rates rising, the interest expense to carry those loans is likely to continue rising as well.
One thing though. Once you pay off those debts, don't go back to the same habits that led to the creation of those debts. At 65, you are running out of time to pay off debts.
Hope this helps,
Assuming that the $1 million is after-tax money, the odds are extremely high that you will be successful. If the $1 million is in an IRA or 401k plan, and the 3-4% rule is calculated on net distributions (assuming taxes are withheld), you are really closer to 4-5.5% after the impact of taxes, which is a tighter equation, and does require things to go well.
The things that would change my opinion would be (in no particular order); 1. a market meltdown where your 3-4% distribution becomes much higher as the same amount is being withdrawn from a much smaller portfolio. 2. a melt up in your spending due to illness, runaway inflation, etc., etc. 3. a current marriage or new marriage gone bad that causes a split of your assets. 4. if assets are not protected from creditors, some legal action that confiscates your assets. 5. unplanned expenses that put you consistently above that level, such as new cars, house repairs, helping children and grandchildren out, changing (upward) tax rates, etc., etc.
In practice, the thing that gets most people is the rate of spending when markets drop. Drawing 3-4% at current market levels works, but a 30% drop in the market value of your portfolio (as could have been the case in 2008-2009) using the same dollar withdrawals is a higher percentage, and the longer the market stays down, the more impact that increased drawdown rate has on your 30-year plan. It’s a bigger deal than most folks think that it is…..
Hope this helps,
You are well positioned. Do not know what the allocation of the 401k plan is, but if one assumes it represents some version of a balanced portfolio, and some or all of the $500,000 in cash is earmarked for a house, things are looking good. Cash positions in after-tax accounts have a tough time generating a positive real rate of return once you consider tax on the interest earned and the impact of inflation. That's why cash in a portfolio is most often considered a short-term parking place.
When you ultimately buy a house, would assume that the interest "write off" for taxes would be helpful, and if borrowing rates stay at these levels, having some debt on the house probably makes some sense. So in the next 2 years you will need to consider the expected differences in the financing rate and home prices. Your analysis of where the world will be in the next two years, may cause you to want to buy a house sooner or later....just make sure you like the house!
At a spend rate of $10,000/month, you are spending $120,000/year, which means you would need about $3 million ($1.5 mil in a 401k and $1.5 in a taxable account) to fund the $120,000 annual spend w/o (in most cases) invading principal. Your effective tax rate could increase or decrease the $3 million estimate, as would the actual blend between 401k and regular assets at retirement.
Hope this helps,
No need to cash it out if your work with a custodian that can support a hard asset investment.
That said, real estate is tricky in IRA accounts, as DIY projects are a no-no as the value of your work is considered a contribution to a retirement account. Also, gotta make sure you have money set aside in the account for taxes, maintenance, etc., etc., as an outside payment for the benefit of IRA held real estate, would also be considered a contribution. Additionally, there are rules against personal use of an IRA held property.
Handled correctly, all is good, but do your homework before proceeding.
If the restrictions mentioned above are too high, and you are compelled to pull money out of an IRA (paying the 10% penalty and 28% income tax, and essentially getting 60 cents on a dollar our of the IRA), to "do your own thing", consider keeping the money in the IRA and buying one of the many thousands of Real Estate Investment Trusts (REITS) that invest in real estate and pay decent dividends to holders. I've seen good quality REITs that own lots of different individual properties, generating between 5-7% in annual dividends, without the stock holders needed to lift a screwdriver. At 60 cents on a dollar distribution, if you invested in a REIT inside your IRA and picked up a 5% dividend, you would need to find a real estate investment outisde the IRA that would generate about 8.5% net cash flow. And even if you could make up for the cash flow differential, you would still have to recon with an investment worth 40% less than it would have been inside the IRA due to the money you willingly paid IRS when you took the distribution.
By simply comparing the net cash flow you can generate yourself to what is available in the open market, you can save yourself from getting invovled in terrible single property deals.
Hope this helps,