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.
As a Participant, don’t get too hung up on the expense details regarding 401k plans. Investment fees are but one part of the fee structure to pay for the administration of an employer sponsored retirement plan. Often revenue sharing from those fees are paid to recordkeepers, administrators, custodians, etc., to provide services to the plan. Talk with your firm’s management about when they last reviewed other plan providers, it might be time....
I think you have a decent idea of using lower cost funds that are available in the plan, if you can augment that investment with outside investments that give you a well-rounded overall portfolio. At 37 years of age and a 25% tax bracket, contribute as much as you can, and if your plan offers a Roth 401k contribution option you should seriously consider it. Money you put away now has a long, long time to grow!
Hope this helps.
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.
There is usually a lot more going on in the economy (both here and abroad) that moves currencies when the Federal Reserve adjusts the Fed Funds rate. That said, if we isolate everything else, and the Federal Reserve increases the Fed Funds rate, typically, it will apply upward pressure on the US currency initially.
That is because, a higher Fed Funds rate tends to push short-term US Treasury rates higher, making them a more attractive investment, which would increase the demand for short-term US Treasuries as a store of value for global investors and global businesses. To buy more US Treasuries, a foreign country investor typically has to exchange investments held in their local currency to buy the US Treasury denominated in US Dollars. Supply/demand principals hold true where the selling of one currency to buy another applies downward pressure on one currency and upward pressure on the other.
Eventually, all else being equal, both the upward pressure on interest rates and the rising relative currency value tends to slow down an economy, which then typically leads to the Federal Reserve to lower interest rates, reversing the cycle.
This is playing out to some extent when one looks at the currency moves between the Euro (weaker) and the US Dollar (stronger), where the Fed is on the cusp of tightening (or at least being less loose) monetary policy and the European Central Bank is still in the midst of monetary easing.
The “all else being equal” comment is important because US monetary policy, US Fiscal policy, and the US economy are not the only game on the planet, and the actions of our trading partners can counteract or amplify typical market responses to US policy actions.
Bond prices and interest rates work like a see-saw at a playground, prices on one side and interest rates on the other. When interest rates go down, prices go up, and visa-versa. The longer the maturity of the bond, the more it is like sitting at the end of the board on the see-saw, which means more ups and downs in the bond's price.
With zero-coupon bonds paying no interest income between purchase date and maturity, all else being equal, they have the most price volatility due to changes in interest rates. That can be good or bad depending on which way interest rates are moving.
If you have invested to meet a future liability, then price volatility may not be that big of a deal. If you have invested for total rate of return, it is. The sell or not to sell question depends on when the bond will mature, the future shape of the yield curve, and what alternatives you have or will have for the proceeds.