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Fixed Indexed Annuities

I often like to share great information when it comes along, I like this piece and have a lot of respect for Mr. Ibbotson.  It is nice to see that what we have been doing for clients for years now has been vindicated a bit by his opinion and theory.  We have been recommending for quite some time that FIA’s are the new asset class and they are on many occasions  a great replacement for bonds in a portfolio plan.
Erick ArnettFixed Indexed Annuities
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A Look Inside Wall Street

So consider this source: I am an independent advisor, and I have been in the industry for 15 years. I have worked for big banks, small banks, a retail brokerage, fledgling hedge fund managers, registered investment advisory firms, and now I am completely independent and objective. I have seen it all and have had exposure to almost every tool or investment product that exists out there. I don’t say this to brag by any means. There are probably far smarter and better experts (as they say) out there. I just want you to consider the source!

Why am I writing this article? After 15 years, I am fed up. I am fed up with all the crap that exists out there to confuse you. I am fed up with my clients’ lack of education, I am fed up with the way they have been treated, and I am fed up with the fact that the industry is stacked against them now. I want to help the little guy! So I intend on being in your face, and I intend on giving it to you straight! These are my opinions based on my experiences. I want to help create, build and preserve a better retirement for people. Many think they have a handle on it, but they really don’t.

So let’s start with this big money expert: the banks! So how do you feel about the banks these days? What do you like about the banks? Do you like the fact that they are paying below 1% on your deposits? Do you like the fact that they are safe? Do your research on FDIC insurance. How safe are the banks? Do you know what the banks really do with your money? Whatever they want! It’s your money right? Or is it? I believe in 2009 the FDIC was actually broke. There are trillions in bank deposits, and I know for sure there are not trillions in the FDIC! Isn’t it interesting that the federal regulators allow banks to widely advertise and promote the FDIC? If they didn’t, you would put very little of your money in the bank. But the investment and insurance industries are heavily regulated, hardly allowed to advertise at all, and if they are, they have to have every little word checked for compliance. For instance, we are not allowed to say to a client that annuities have a dollar-for-dollar reserve; we are not allowed to say that most states guarantee annuity premiums up to $300,000. Sounds better than the FDIC to me, but the industry is not allowed to boast like the banks are? I wonder why that is? I will let you come to that conclusion on your own. Remember, I worked in the banks, and I understand and know what is going on there. Basically, the bank takes your money and gives you a paltry rate to park it with them. They then take it and lend it out to others, they invest it as they wish, and they reap the high returns. That seems like a great deal? Current rates, I would say, are criminal. Don’t forget the Fed let’s them basically borrow money from them for free too.

Of course we need money in the banks for liquidity, we need an emergency fund, and we need to pay our bills and such, but I would never keep large amounts of your wealth in the bank. Yet every day I meet with people that do and have had the majority of their wealth sitting in the banks, and they don’t know or understand that their wealth and purchasing power is eroding daily. They are there for one reason and one reason only – fear!

That brings us to the real and most important reason why your money should not be in the banks: INFLATION! It is amazing to me that throughout my years of experience, almost every person, client or even advisor who I have run into does not factor this or even consider it. This is the No. 1 silent killer of people’s wealth today. When you factor inflation, taxes and fees into your equation, I can show most that their deposits sitting in the bank are eroding. They are actually losing money! Even after you put it all down for them, some are still reluctant to move large sums out of the bank because of fear! The fear does several things: It puts them in a mode of indecision so they actually do nothing and prevents them from listening to advisors. Some think we are all Madoffs or sharks, but if you think that, at least take control of your own money! Take control of your own destiny! At least put your money into an investment that will keep pace with inflation!

Do you know how the CPI numbers are calculated? You would be surprised, did you know that the government changed the way they calculate it in 1983, and low and behold that method lowered the number. Why did they do this? So they didn’t have to increase COLA of course. Ask yourself how much a gallon of milk cost you five years ago and how much it is now; ask yourself how much a gallon of gas cost! Then tell me that getting less than 1% on your money is a good thing. Others tell me, “well I like my money in the bank because I know where it is, and I can control that.” Once again, where is your money really?

Over 6000 banks collapsed in 2009 alone. Was your money safe? All the FDIC does is act as a bully. They come in to a well-run, healthy bank that made good decisions and tell them, “hey you need to take over that failing bank across the street.”

I am sorry, but the No. 1 fear you should have is running out of money in retirement.

There are many tools to combat inflation, but let’s first talk about why we really need to combat inflation! Then we will talk about some of the tools. We need to combat and plan against inflation for one reason and one reason only! RETIREMENT! Retirement planning is the No. 1 reason clients come to me, and I would venture that most advisors would say the same. What do we need in retirement? We need income, right?

In retirement planning, we need to find what I call your FINANCIAL SPEED! Your speed is your velocity of money, how much do you need to put away, at what rate of return over what timeframe do you need to get you to your goal, and what is your goal? A good retirement is one with income to accommodate your lifestyle throughout your entire retirement – not just the first few years, but 20 to 30 years! So what are all those figures? Those comprise your FINANCIAL SPEED! I think it is simple, but it really isn’t! There are many forces and variables that can break your stride! The guidance and the help of a planner can help. I like to put several scenarios in front of my clients to show them what they could expect.

What I see so often is that people think they really have a handle on things based on some simple calculations they make. They often use some retirement calculator on a website, and within five minutes, they are safe! There is so much more to it than that. But the common mistake I see is the lack of planning to bridge that income gap! What is the income gap? Most will say, “ok, when I retire at age 62 or 66, I will need amount x, and that amount at a certain rate of return will provide x amount of monthly income, and that monthly income plus my Social Security will provide enough income to take care of my current monthly expenses.” Keep in mind this calculation is usually based on current needs. How do we really know what our future needs will be? We may need $5000 in today’s dollars to provide for us, but what does that need to be in 20 or 30 years? It may need to be more like $8000, and that $3000 dollars a month is the income gap, so how do we fill that? That is where true planning comes in. To accomplish that, you will need investment expertise. Go ahead and try it on your own if you want, but I don’t suggest it. So often, I hear people bragging about their returns on or yields on an investment, and I have to say I don’t really care what that is. I care about what you kept in your pocket after taxes, fees and inflation because that’s your real return, and most of the time that isn’t so exciting is it? It is also dragging your FINANCIAL SPEED!

So let’s look at some tools that may help you get to retirement and sustain it. In fact, some tools that you are probably already using or have used. The No. 1 tool we are all relying on is Social Security, right? That brings some questions to mind: How many of your advisors or brokers are talking to you about Social Security planning? How many use it in their planning? When was the last time your advisor asked to see your Social Security statement, and when was the last time your broker asked to see your tax return for that matter? Too many times, Social Security is one of the largest investments people have contributed to and accumulated during their working years. They say the average worker has worked 90,000 hours by the time we retire. This is a simple tool that we will use to do one thing and one thing only in retirement, and that is to GENERATE INCOME!

There are other tools that we can invest our money in to potentially generate income, right? These tools are CDs, annuities, stocks, bonds or mutual funds, gold, real estate, and ETFs to name a few. These are great tools, but be mindful of what I discussed earlier: taxes, fees and inflation. From these tools, we would expect different results. CDs for instance, they are paying a whopping .5 or .6% these days. Again, why have your money here? Yet there is over $10 trillion sitting in banks. Stocks and bonds may provide growth and gains, which we need to fuel our financial speed, right? But once again, I am only concerned when I am planning on the after-tax return of these.

What about annuities? Annuities can provide lifetime income, growth and tax deferral. They may also by-pass probate, in some states they are creditor proof, they provide a competitive rate of return, they can provide liquidity, typically 10%, and they have provisions to allow full liquidity for nursing home or terminal illness care. The disadvantage is that you have to hold them for a while, and some don’t get you the full market. Did you know that there are some annuities that will pay you monthly income for the rest of your life even if you run out of money? Will the bank do that for you? Most people don’t understand how annuities work, and even worse, I think there are some advisors who don’t either.

All of these tools can provide a combination of results like growth, income, diversification, safety and taxes. What we may or may not know is that all these tools and results are useless if we don’t have life! If we don’t have our health, relationships, faith, etc., none of these tools mean a thing! You may want to travel, you many want to play golf in retirement, no matter what you want to do, none of the planning or tools and results matter if you don’t have life, health and faith. What is most important in your life? Very few say their mutual funds, and why is that? Because we all know that these tools are just a means to an end, and they are tools we use to accomplish these things we talked about to ultimately give us one thing!

Don’t ever fall in love with your investments; fall in love with the end results. IF we have millions in the right tools, but we lose our health, does it really matter if we have millions in our investments? Nope, it won’t extend our life one single breath. So if your tools are not accomplishing what you bought them for, we need to reconsider if it is time to look at new tools. I believe that the real purpose of money dictates where you put it. All these investments are nothing more than a tool we can use to generate income for our retirement. There is no retirement without income! There is no retirement if you don’t know what your FINANCIAL SPEED is. Without the right tools and the right planning, the No. 1 fear can be realized – RUNNING OUT OF MONEY! I believe all of this comes down you and an advisor putting together a solid retirement income strategy. This will give you the peace of mind you need. DO you have a plan that guarantees you can never run out of money?

It truly isn’t about the tools or the products; it is about the plan, your after-tax returns, fighting inflation, and bridging that income gap so you can create and preserve your retirement.

Erick ArnettA Look Inside Wall Street
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Great Article on AnnuityFYI

I was quoted on

In Fortune Magazine, Erick Arnett recommends that those of us looking to protect our retirement nest eggs should err on the side of caution. His article is called “Stop Drinking the Fed’s Kool-Aid – Invest In Your Retirement.” This financial expert is constantly asked by consumers how they can protect their retirement savings and what they should do about buying and selling stocks and bonds. He believes that the markets are nearing a sell-off and says that we are following the typical cycle of a massive correction every 3-5 years. Mr. Arnett says that it would be wise for consumers to err on the side of caution in order to protect their retirement savings. You can be cautious and keep your money safe, but still receive a nice return on your money.

Check out the whole article     

Erick ArnettGreat Article on AnnuityFYI
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Dont Invest With Your EMOTIONS !!!

1.  Have a plan
2.  Stick to that plan
3.  Have a formula and a strategy in place and don’t assume your current advisor has one?!
4.  Don’t lose money, avoid the big sustained dips.
5.  Avoid the noise!
6.  Aim for smooth consistent returns over time and don’t chase the markets or investments.

Erick ArnettDont Invest With Your EMOTIONS !!!
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Complex World Of Investing

See the attached, I am always looking for ways to educate my clients, family and friends on this ever changing and complex world of investing.

This is a great research piece from one of our bond only managers that we sometimes utilize in our portfolios.  It is great to get perspective from a non equity manager as well as the equity guys.  They often shed some light and have a different perspective.  I particularly like the viewpoint on the term volatility and some great points made for us to all keep in mind.

Redwood Commentary

“Many investors may believe the terms “risk” and “volatility” are synonymous. The key difference is that while volatility can come and go, risk to the investor is always there. In our opinion, the risk of any investment should be evaluated by the greatest expected potential loss or drawdown. For example, equities may experience volatility periodically, down 10- 20% during a correction, but the risk of the correction turning into a 20%+ drawdown or bear market exists. Thus, investors in equities need to prepare beforehand to accept this type of risk. To the same extent, an investor’s risk tolerance shouldn’t change as a reaction to volatility in the markets. From our perspective, today’s volatility versus tomorrow’s volatility is irrelevant from a risk tolerance objective.”

“S&P 500 Index Declines in Perspective – The Deeper the Stock Market Decline, the Longer the Recovery Declines in the S&P 500 since December 31, 1945 (Post WWII) Sources: Bloomberg, Redwood. Data as of 3/31/18. For illustration purposes only. An investor cannot invest directly in an index. For additional information please see disclosures at the end of this commentary. History doesn’t always repeat itself, but it often rhymes. Looking at the above chart for context, markets historically tend to recover over time. The question is how much time and how severe a pullback can an investor handle without capitulating. A 5-10% drawdown on average only took 3 months to recover, providing some comfort to the most recent pullback. However, the data shows that the larger the decline, the longer it historically takes to recover. A drawdown in the S&P 500 Index of 20%+ led to a 2-year recovery time, on average. This is why we believe it is important to have an active, tactical, risk-managed component in a portfolio that seeks to reduce exposure, with the goal of avoiding larger drawdowns”

Redwoods approach to managing risk and long term strategies are very much in line with ours at Formula Folios, and that is why we like to use managers with expertise in their discipline that are like minded.

Food for thought, as always I am available for questions and feedback.  Click Here to Contact Us.

Erick ArnettComplex World Of Investing
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Tax Reform January 2018

Download this quick tax reform white paper.

This white paper discusses the portions of the Tax Cuts and Jobs Act that are of particular importance to business owners, investors, and financial advisors. We point out situations that are likely to fare better and those likely to fare worse under the legislation. At the end, we present a chart of “winners and losers” that takes into account these individual situations. The chart also shows business and economic sectors particularly likely to be affected by these tax changes, thereby potentially altering their equity valuations.



Erick ArnettTax Reform January 2018
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Trump Tax Plan

Join us on our monthly webinars which discuss how the new TAX Plan affects you.

Good financial planning and ongoing monitoring of your financial plan requires that we all stay up on the latest tax laws.  I invite you to take a few moments to read over this white paper, it has some key information and data that I think may be helpful to you.  If your current advisor or planner is not asking these questions or keeping you informed, they should be or you need to be asking them how does this affect my plan?

Send me a personal email and i will send you a personal invite or fill out confidential form to get started.

Wednesday July 25 – 6:00PM

Thursday July 26 – 6:00 PM

You can also register by calling (844) 323-0931

or by going to  – enter in code PUMNAH

Erick ArnettTrump Tax Plan
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What’s Your Financial Speed?

Read this great article I wrote for Forbes.

It discusses what I consider the single biggest factor for retirement.

“Financial speed” is a phrase I coined to help people in retirement planning. Simply put, I use some key data from their portfolio to show how and why it’s moving and how fast it should be moving to reach their goals. It’s actually pretty basic math.

To calculate your financial speed, ask yourself the following three questions:

  • What kind of return do I need to target during the accumulation phase of my retirement?
  • What is my risk tolerance number?
  • At what speed does my portfolio need to be moving during the distribution phase of retirement?

Read it here / 352.340.2942


Erick ArnettWhat’s Your Financial Speed?
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February Market Update

Equities: Broad equity markets finished the week positive as small-cap stocks experienced the largest gains. All S&P 500 sectors finished the week positive with cyclical sectors outperforming defensive sectors.

So far in 2018 consumer discretionary, technology, and financials are the strongest performers while real estate, energy, and utilities have been the worst performing sectors so far this year.

Commodities: Commodities were positive as oil prices rose 4.19%, breaking a two-week losing streak. Oil received support from a rebound in global stock markets and a weaker dollar, but the shorter-term upside is somewhat limited due to projections of rising US production. However, while US production is expected to rise for the foreseeable future, the OPEC production cuts have supported a longer-term positive trend.

Gold prices gained 3.08% – the strongest week since April 2016. Signs of inflation, along with a weaker dollar, have helped drive the metal higher this year.

Bonds: The 10-year treasury yield increased slightly from 2.83% to 2.87%, remaining near the highest level since the beginning of 2014. As yields remained mostly steady, aggregate US bonds were mostly flat amid continued speculation the Fed may hike rates faster than expected in 2018. Bond prices and interest rates move inversely, so higher rates generally lead to lower prices.

High-yield bonds were positive as riskier asset classes rebounded sharply following a sell-off during the previous week. If the economy remains healthy, higher-yielding bonds are expected to continue performing well as the risk of default is moderately low.

All equity asset class indices are currently positive in 2018 while bonds asset class indices are currently negative.


Lesson to be learned: “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – John Bogle, founder of Vanguard. As frustrating as it can be at times, the stock market has its ups and downs. The risks of investing in stocks goes hand-in-hand with the higher return potential compared to safer investments such as bonds or bank CDs. While it may be tempting make knee-jerk decisions when markets move quickly, we need to stay focused on our long-term investment objectives. Keeping a disciplined investment strategy can reduce daily market noise and increase the odds of a successful outcome over time.

FFI Indicators:  FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 21.35, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 rebounded after finishing sharply negative for two consecutive weeks. While shorter-term momentum has pushed the Index lower, longer-term momentum remains intact as the Index remains in the trading range that has been in place over the past two years. The index tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) two weeks ago, but seemed to find support and has rallied off its lowest levels. This illustrates there may be support for a continued longer-term bull market despite the shorter-term weakness. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a long-term bullish pattern for now.

*Chart created at

Stocks had their best week since early 2013, moving back into positive territory for 2018.

Following the worst two weeks for the S&P 500 since August 2011, stocks rose sharply, recovering over half of the losses from the recent market sell-off. This rebound seemed to be largely driven by diminishing fears regarding a more aggressive monetary policy by the Fed. While investors shrugged off Fed fears, the Consumer Price Index (CPI) data released on Wednesday was higher than expected, showing inflation of 0.5% in January compared to the 0.3% estimate.

Investors embraced the strong inflation report this week as stocks ended Wednesday higher (which is interesting as the fear of higher inflation following strong wage growth data on February 2 is what initially sparked the recent correction). The support of inflation this time around shows the concerns earlier in the month may have been premature, as the Fed will likely not base its long-term policies on a single month of economic data. Rather, it takes time for the relationship of stronger wage growth and inflation to be reflected in the economy and flow through to more broad monetary policies.

Though shorter-term market momentum has been volatile and negative, the longer-term prospects of 2018 remain mostly positive as corporate earnings and economic fundamentals remain strong. Even in the strongest of bull markets, stocks will not rise every day / week / month, and periodic pullbacks should be expected. These shorter-term pullbacks can even be considered healthy for the continuation of a longer-term bull market.

Short-term market corrections are only a small blip on the radar for long-term investors. However, economic data and market sentiment can change quickly. This is why it is still important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results, rather than chasing short-term returns.

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions. / 352.340.2942

Erick ArnettFebruary Market Update
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My View on Bitcoin

Ok so I guess I need to address the whole Bitcoin revolution. I am a little bit of a traditionalist when it comes to investing and kinda subscribe to the whole Warren Buffet thing, like maybe you should understand something and it should have value before you throw good money at it. But call me crazy! I can barely turn my computer on. The technology has been so rapidly advancing that even I feel confused at times. But since my clients and all my friends are investing in Bitcoin and the crypto currencies I needed to do a little research on the subject and then offer my opinion for whatever it is worth, since it is up over 300% in less than a year.

So to be clear its not actually an investment it’s a currency. A cryptocurrency or digital currency and it has 0 regulation. It is also something that most people don’t even understand.

I am going to be frank it should definitely not be apart of your retirement portfolio! Or should it?

I am going to guess that Warren Buffet would not own Bitcoin. Perhaps the greatest investor of all time has a few easy guidelines to follow.

1. Don’t lose money,

2. Don’t break rule number 1.

3. Don’t invest in things you do not understand.

So can you lose money in Bitcoin. Well yes you can, absolutely. It is super volatile, it literally fluctuates up and down in double and sometimes triple digits or percents. So rule number 1 is broken. The other day a friend of mine who is a landscaper by trade told me I just had to get into Bitcoin and at that time it was trading at like 16,000 a coin. By the time I got around to researching the idea it had dropped to 11,000 and some change. That was like a 32% drop. So I sent him a text and he said “oh don’t worry it goes up and down like that all them time. So there is your answer to Buffets rule 1 and 2.

So do you understand bitcoin? Buffets third rule is to understand the investment. So if you understand digital currency and blockchain technology which some of you reading this may indeed understand then maybe it makes sense. I am not a computer nerd or tech guy so it is French to me and I am thinking to the majority of America it is as well. So practically speaking do you know what it does? And why is a currency tied to it?

If you are scratching your head right now like me then bam! It does not pass Buffets 3rd rule.
Look Bitcoin is truly a revolutionary idea and a promising technology I am sure? In fact I like the fact that it cuts out the banks, which are the evil empire in my opinion anyway. But its up over 800% over the last year and chances are you missed out on that and that is ok, maybe you didn’t but I am going to guess that you didn’t suffer any by not being in it.

I just got back from Vegas and I was at a conference not gambling by the way! But if you want to invest in Bitcoin right now and you have some money just laying around that your not concerned about then go ahead because it is not much different right now than just a big gamble. That is going to be why I say Bitcoin is probably not for your retirement savings. What you really need is quite simple and kinda boring and its not cutting edge.

Here is what I think you need after spending 20 years in the financial planning and retirement planning industry and I am sorry its boring but its tried and true and I can help you achieve it.

Solid Financial Plan

1. One that analyzes the probability of different financial strategies being able to sustain your long-term goals. I know, it’s pathetically boring, but it works.

Being Tax Smart

2. A customized, tax-smart, low-cost investment strategy. This is only slightly more exciting than a financial plan, but so, so very important. Many people choose investments based on what they see in the rear view mirror (like buying Bitcoin because it already went up). Or they pay through the nose in fees, many times without knowing about it.


3. Someone they can trust when they have questions. Sadly, many financial “experts” are really just well-trained salespeople. But when you have concerns and need some objective advice, it’s not usually a salesperson you’d prefer to turn to.
These are pretty simple ideas… not nearly as exciting as chasing the 300% return of Bitcoin this year. They do, however, easily pass Warren Buffet’s 3 simple rules of investing. / 352.340.2942

Erick ArnettMy View on Bitcoin
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