Haven Financial Advisors
Louis (Lou) Kokernak has been serving the investment community for nearly 30 years, after obtaining an MBA from The University of Texas. He founded Haven Financial Advisors as a fee only advisor in 2002. His goal was to deliver unbiased advice to clients. He has been quoted in the Wall Street Journal, Barrons, Bloomberg News among many other media outlets. Lou has taught courses to CFP candidates at The University of Texas, St. Edwards Univerisity, and the University of Texas at San Antonio.
Haven Financial Advisors is committed to their clients' future. They have been a fee only financial advisor since 2002. The first step in the relationship is getting to know clients and what their goals are. It's a two way communications process that requires the engagement of both parties. Lou and his team develop a financial plan that includes a diversified asset allocation tailored to every clients personal situation. Experience tells them that the key value proposition of the plan is the comfort level it delivers to the client - that clients are taking concrete steps to achieve realistic financial goals.
Lou has lived in Austin since 1990. He is a Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) and is a member of the National Association of Personal Financail Advisors (NAPFA). His charitable interests include public health and secondary education.
MBA, The University of Texas
BSCS, Rensselaer Polytechnic Institute
Assets Under Management:
Mission Statement of Haven Financial Advisors
Haven Financial Advisors explains the evolution of the HSA
Haven Financial Advisors Discusses the Benefits of Foreign Stocks
How to invest your Health Savings Account (HSA)
Yes, this is certainly feasible. At Schwab, for example, you can fill out an IRA distribution form instructing the custodian to sweep dividends, capital gains, and interest to a taxable account. Any of these automatic distributions are counted toward your RMD. It's a fire and forget mechanism.
There is a downside, however. The tail can start wagging the dog. RMD calculations typically require a substantial fraction of your assets be distributed. To satisfy the RMD in its entirety, you might be tempted to skew your portfolio to securities that generate high income. This is not a good rationale for portfolio construction. Commissions on security sales are usually inexpensive if you shop around. Many custodians have no transaction fee funds that are pretty good. Secondly, it's typically a good idea to sell one or two positions a year to rebalance your portfolio. Selling US stocks after their big run up in 2016 might be a good strategy with your IRA. My preference is to execute RMDs once a year for clients and to use this occasion as an opportunity to rebalance through asset sales.
This is a good question. I'll address the potential impact of Peter Navarro and, more generally, Mr. Trump's strident critique of our trade relations with major trading partners such as China. Second, I'll offer up a few words on what his Health Secretary, Tom Price, might do for your tax sheltered saving.
If the new Trump administration uses its executive power (which it can) to implicitly or explicitly raise tariff barriers, it could easily spark a trade war. This is precedent for this from the late 1920s and 30s. Trump could provoke a "tit for tat" retaliation from targeted parties like China, Mexico, and Japan. Keep in mind, the Chinese ironically have been resorting to extraordinary measures to PROP UP their currency in the last few months. They will not be receptive to Trump's criticism that the Yuan is too low.
A trade war will hurt everyone, but the burden in this country will fall heavily on exporters. From a personal investment perspective, that argues in favor of smaller cap US stocks rather than S&P 500 companies. In fact, if you look at the rally in the US stock market since the election, you will find that smaller cap stocks (Russell 2000) have outperformed larger S&P 500 companies. Why? A Trump fiscal stimulus would benefit corporate America in the short run. A trade war, however, would offset a lot of that benefit through reduced exports. Smaller US companies export less. Thus, they would stand to benefit relative to large companies from Trump's trade and fiscal policies.
Tom Price, Trump's choice for Health and Human Services, is a strong foe of Obamacare. There is a strong likelihood that Price will entertain medical reform ideas from conservative think tanks. Look for an expansion of Health Savings Accounts (HSAs) in a Trump Administration. Larger HSAs are part of most conservative blueprints for health care reform. HSAs are a great tax shelter for those with disposable income. You can use it as a long term tax shelter with a little planning. See my article on the topic for more details.
The differences between an indexed mutual fund and an exchange-traded fund (ETF) are subtle, but can be important. Most indexed mutual funds are low cost. There are exceptions to the rule. Mutual funds that track the S&P 500 have management fees that range from 0.03% to over 0.50%. That adds up over several years. Indexed ETFs all almost uniformly competitive with the cheapest index mutual funds.
The security structure of mutual funds and ETFs is different. Mutual funds are marked to market once a day, after close of market. They are priced at the net asset value (NAV) of the underlying holdings. ETFs trade continuously throughout the day like stocks. Their bid ask spread reflects the overall trading volume in the ETF plus a risk premium that dealers require to make a market in a security that may have illiquid underlying assets.
Mutual fund managers must retain cash balances to satisfy share redemptions. Thus, some of the investor money sits idly. On the other hand, the number of ETF shares is fixed in the short term. Almost all of the ETF value is invested in the index.
ETF shares are created and redeemed by authorized participants (APs) in exchange for the market basket of underlying securities. This feature allows the ETF issuer to manage the cost basis of the inventory they deliver during the redemption of shares. Bottom line, equity ETFs are more tax efficient than equity mutual funds. SPY, for example, has paid virtually no capital gains distributions in its 20+ year lifespan.
Some ETFs do pose a disadvantage relative to mutual funds. Prices of the less liquid ETFs can deviate materially from their NAV. Moreover, bid/ask spreads can be substantial with these less liquid ETFs. The mark to market feature of the traditional open-ended mutual fund does insulate investors from trading anomalies like this. Thus, investors should be careful in placing orders for some of the smaller ETFs in the marketplace.
I've consulted on a number of choices like the one you're facing. Full disclosure - I do NOT sell annuities and typically do not recommend them as an accumulation vehicle. That said, lump sum payout offers often are attempts by the plan sponsor to reduce overall pension liability. The annuity option is usually the best actuarial choice for the individual assuming reasonable health.
Some rough math in your case can help. If you are a 65 year old male, your life expectancy is more than 19 years. You'll capture that in nominal cash flow in half that time. With interest rates as low as they are, the EXPECTED return on the entire annuity stream should be significantly higher than the return on a high quality bond portfolio of similar term. If you are adept with spreadsheets, you can compute the expected return on the annuity and compare with, say, a long term investment grade corporate bond yield. Also, annuities insulate you from longevity risk. That's an important consideration in retirement and may be worth a little extra if the numbers are close.
If you would like to do a reality check, consult with a merchant provider of annuities like Vanguard or Schwab. Tell them your birth date and the amount ($150,000) that you are willing to invest. Ask them for the best two quotes on an immediate annuity. See if they can come close to $1,250 per month.
Not sure how your portfolio is invested. For the purposes of discussion, we'll assume that it is comprised of a balanced mix of stocks and bonds. Of the major stock indices you cited, the S&P 500 correlates best with movements in US stocks, primarily because its 500 members comprise the most of the market cap weighting of that market. You might also consider the somewhat lesser known Russell 3000 to gage equity performance. The Russell measure basically subsumes all relevant US stocks.
The bond piece is a little more complex because there is no outstanding index well known to the public. I will suggest the US Aggregate Bond index. It is generally considered to be one of the best recognized benchmarks in the American fixed income space. According to eVestment, about $663 billion of institutional assets is invested in 270 U.S. core fixed-income portfolios, 75% of which are benchmarked against the Barclays aggregate bond index. For more details on bond indexing, take a look at my recent article on the topic.
These benchmarks are good, but they have their shortfalls. The equity indices discussed here do NOT include foreign stocks. To the extent your portfolio has them, there will be some divergence. In the last seven years, US stocks have substantially outperformed overseas markets. Similarly, the Aggregate Bond Index does not include Treasury Inflation-Protected Securities (TIPs) nor Municipal Bonds.
You can use ETFs like SPY (S&P 500) and AGG (Aggregate Bond Index) to compare actual investment results of indexed portfolios to the calculated performance of your own investment accounts. If you have a 60/40 mix of stocks and bonds, you should be performing somewhere between SPY and AGG. If not, you need to understand why not. Is it because your asset allocation lies outside the bounds of the index or are your fund managers making bets within those bounds?