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May 2005 Dr. Gary J. Harloff, Ph.D. Harloff Capital Management (HCM) Registered Investment Advisor 815 Crocker Road, Su PowerPoint Presentation
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Investment SAVVY and Your 401(k)/IRA Educational Presentation. May 2005 Dr. Gary J. Harloff, Ph.D. Harloff Capital Management (HCM) Registered Investment Advisor 815 Crocker Road, Suite D-10,Westlake, Oh 44145 440-871-7278. Disclaimer.

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slide1

Investment SAVVY and Your 401(k)/IRA

Educational Presentation

May 2005

Dr. Gary J. Harloff, Ph.D.

Harloff Capital Management (HCM)

Registered Investment Advisor

815 Crocker Road, Suite D-10,Westlake, Oh 44145

440-871-7278

disclaimer
Disclaimer
  • This information is not specific investment advice for any particular person.
  • Past performance does not insure future performance.
retirement job change what to do with your 401 k 403 b 457 govt retirement money
Retirement/Job Change- What to do with your 401(k),403(b), 457 govt. retirement money?
  • 5 choices:
  • (1)do nothing
  • (2) take the cash
  • (3) rollover to a self-directed IRA
  • (4) rollover to an actively-managed IRA
  • (5) rollover into your new co.’s 401(k) plan
outline
Outline
  • HCM original models, tactical / dynamic asset allocation- opposite of buy-hold
  • Mutual Funds & ETF investing
  • Types of funds
  • Bull and bear markets
  • Recent restrictions on funds
outline cont d
Outline (cont’d)
  • Retirement needs rules of thumb
  • Fees and commissions drive services
  • 401(k), 403(b) and 457 government rollover issues
  • Prospects for high return for individual investors
about harloff capital management
About Harloff Capital Management
  • Active-fee-based portfolio management
  • Help you rollover money from 401(k), 403(b), 457 into a managed IRA account
  • HCM manages individual 401(k) accounts in retirement plans; 74% never re-allocate
  • HCM establishes new 401(k) plans with management
  • HCM technology- not available on Wall St.
about harloff capital management cont d
About Harloff Capital Management (cont’d)
  • 1994 registered investment advisor
  • To identify and invest in sector/index winners
  • Most on Wall Street use data based on 3 to 20 years of data. This is buy-and-hold regardless of the rebalance time.
  • HCM has discretionary trading authority
hcm helps establish new 401 k retirement plans
HCM helps establish new 401(k) Retirement plans
  • HCM consults with management
  • turn-key 401(k)
  • internet access, daily valuation
  • funds, life style funds, international
  • includes a HCM managed portfolio option
  • IRS filing help
hcm active original strategies
HCM: Active Original Strategies
  • Four new strategies developed by Gary: Aero Ph.D., research started in 1970.
  • New HCM models and concepts not available in books or brokerage houses.
  • In contrast to HCM’s original strategies, majority of investors use public strategies (see Encyclopedia Technical Market Indicators-Colby where there are at least 3 good pages of 800).
four hcm systems
Four HCM systems

1) Harloff Value Index model: absolute

2) Long term rel. momentum model

3) 2004 oscillating market was difficult for momentum systems. Developed new oscillating/trending system 8-04

4) Dynamic asset allocation - portfolios

hcm technology example hcm cycle trend model with buy sell 3 4 05
HCM Technology Example: HCMcycle & trend model with buy/sell, 3-4-05

Past performance does not insure future performance, hypothetical-not actual trades

3 4 2005 nav res sup HCM l-gn b/s last-date

ProFunds INV:UltraSecto ENPIX 30.54 31.29 29.20 5.14 43.38 B 1 3 2005

USGlobal Global Resourc PSPFX 13.07 13.49 12.53 4.12 27.51 B 1 3 2005

Rydex INV:Energy/231 RYEIX 17.92 18.12 17.28 3.18 25.93 B 1 4 2005

Fidelity Sel Energy/60 FSENX 39.82 40.26 38.38 3.14 22.33 B 12 29 2004

Fidelity Sel Natural Re FNARX 20.59 20.77 19.88 3.05 23.66 B 1 4 2005

ProFunds INV:Basic Mate BMPIX 42.31 42.73 40.04 2.99 17.04 B 1 19 2005

ProFunds INV:UltraSecto BMPIX 42.31 42.73 40.04 2.99 17.04 B 1 19 2005

Icon Energy ICENX 27.36 27.97 26.41 2.89 23.41 B 1 6 2005

ProFunds INV:Ultra Sect PMPIX 30.22 31.72 28.07 2.87 13.78 B 1 28 2005

USGlobal World Precious UNWPX 17.56 17.82 16.58 2.83 15.15 B 1 20 2005

AdvInCir INST:Acadian E AEMGX 22.89 23.38 22.42 2.72 25.49 B 10 11 2004

Putnam Global Natural R EBERX 27.58 27.71 26.77 2.70 22.47 B 10 26 2004

Oppenhmr Real Asset-A QRAAX 7.92 8.16 7.40 2.60 19.64 B 12 27 2004

Fidelity Sel Natural Ga FSNGX 35.24 35.79 33.84 2.59 18.29 B 12 31 2004

hcm dynamic asset allocation
HCM Dynamic Asset Allocation
  • Original HCM DAA statistics. Original HCM constrained optimization program.
  • Dynamic asset allocation- max return for certain risk
  • Market neutral constraint, portfolio beta = 0 (portfolio returns independent of market)
  • Portfolio example given for market neutral
hcm employs dynamic daa or asset allocation
HCM Employs Dynamic (DAA) or Asset Allocation
  • Change asset allocation (portfolio) often- goal: stay with winners and to sell losers
  • Partly a data analysis problem as data, statistics, and time series are “turbulent”
slide16

Practice Sometimes Beats Theory“HCM says it is due to wrong statistics typically used” (graph from Michael D. Smith, CFA, Hewitt Investment Group, June, 2000)

slide17
HCM Optimal Portfolios: Dynamic Frontier & Market Neutral,return =1.4%/wk, 3-4-05 (hypothetical not actual portfolios)
  • DAA: n=9 r= 1.40 sg= 0.50 beta = 0.99
  • tiker dynamic frontier fract alpha beta var

1 RYVNX Rydex Venture 100-H 0.14 1.22 -3.15 1.226

2 USPIX ProFunds INV:Ultra Sh 0.13 1.21 -3.15 1.217

3 FLATX Fidelity Latin Americ 0.24 1.21 2.50 0.791

4 FSESX Fidelity Sel Energy S 0.11 1.21 1.50 0.916

5 ENPIX ProFunds INV:UltraSec 0.08 1.80 4.23 5.536

6 FSENX Fidelity Sel Energy/6 0.08 1.27 2.20 1.759

7 PSPFX USGlobal Global Resou 0.06 1.38 3.62 3.353

8 RYVIX Rydex INV:Energy Serv 0.08 1.13 1.71 1.123

9 SLAFX Scudder Latin America 0.08 1.13 2.63 0.865

Mkt Ntl:n=5 r= 1.40 sg=0.78 beta = 0.06

tiker market-neutral

1 RYVNX Rydex Venture 100-H 0.27 1.22 -3.15 1.226

2 ENPIX ProFunds INV:UltraSec 0.26 1.80 4.23 5.536

3 USPIX ProFunds INV:Ultra Sh 0.26 1.21 -3.15 1.217

4 PSPFX USGlobal Global Resou 0.11 1.38 3.62 3.353

5 FSENX Fidelity Sel Energy/6 0.10 1.27 2.20 1.759

mutual funds and etf investing
Mutual Funds and ETF Investing
  • Many 401(k)s have mutual funds
  • Funds may have 100 stocks - diversification
  • Exchange Traded Funds- like funds and trade like stocks
  • portfolios of funds, and ETF’s
  • about 7,000 funds, about 150 ETF’s
types of funds parsing the market
Types of Funds: Parsing the Market
  • Sector, Index, international, bonds
  • “style box”: large (market valuation), small (market valuation), growth (earnings), value (cheap)
  • about 9,000 funds. Many similar in name
  • only a few fund families are trader friendly
bull and bear markets why and how often
Bull and Bear Markets:Why and How Often
  • Bear markets - 20%, within a business recession, usually 1 out of every 4 years
  • Buy-&-hold accepts bear losses
  • Bull market 3 out of 4 years is typical
  • Fed’s charter is stability???? After millenium, Fed sharply reduced money supply and a bear market followed in a few months, and a recession followed with a year lag
recent restrictions on funds
Recent Restrictions on Funds
  • Recent legal actions led many funds to add restrictions and short term redemption fees
  • Funds paid fines for illegal trading after 4 pm
  • Funds assessed fines for not sticking to their perspectuses
  • This will lead to more ETF portfolios
retirement needs rules of thumb
Retirement Needs: Rules of Thumb
  • Life expectency, as of 1999
  • men 80 years
  • women 85 years
  • Retirees need about 80% of preretirement income x no. of years
  • ex. 0.8 x ($50,000) = $40,000 for 20 years = $800,000 needed
asset allocation rules of thumb
Asset Allocation: Rules of Thumb
  • Asset allocation ={% stocks, bonds, cash}
  • % bonds = your age is overly simplistic
  • Doesn’t help if you live 20 years longer than your parents=> need for increased return
  • Fixed asset allocation argument based on long term statistics; 3-20 years data. Industry mantra is buy-hold.
do you buy and hold b h anything
Do You Buy and Hold (B-H) anything?
  • Your career?, Your education?, Your family?
  • Any part of your life?
  • The financial sales industry says you should buy and hold until they tell you otherwise.
  • HCM thinks investments should be actively managed, just like the rest of your life
buy hold vs dynamic asset allocation
Buy & hold vs Dynamic Asset Allocation
  • Buy and hold: never sell, only buy once
  • Dynamic asset allocation: try to invest in the best portfolio (sectors, indexes, foreign, bonds, etc.) and change portfolio when market changes.
fees and commissions how they drive service
Fees and Commissions: How they Drive Service
  • Commissions based: broker calls you to buy a stock, fund, insurance, fixed or variable annuity
  • May be a conflict of interest
  • Origin of buy-and-hold non-strategy
fees and commissions how they drive service27
Fees and Commissions: how they drive service
  • Fee-based: registered investment advisor manages account based on x% per year fee
  • HCM trades funds at institutional level, or inside 401(k); no trading fees (no commissions)
  • No conflict of interest
immediate income needs 72 t distributions for ira rollover
Immediate Income Needs: 72(t) Distributions for IRA Rollover
  • Age<59.5
  • substantially equal payments for 5 years or age 59.5 whichever is longer
  • not subject to 10% early withdrawal penalty
unique to ira penalty free premature distributions
Unique to IRA: Penalty Free Premature Distributions
  • Deductible medical expenses
  • medical insurance premiums if unemployed
  • income during disability
  • college education expenses
  • first-time purchase of primary residence
take the cash you pay a high price example
Take the cash: You pay a high price, example
  • $10,000 initial distribution
  • -2800 federal income tax(28% bracket)
  • -500 state income tax (5%)
  • -1000 penalty tax (10% penalty if < 59.5)
  • _________________________
  • $5,700 of original $10,000
take the cash you pay a high price cont d
Take the cash: You pay a high price (cont’d)
  • Growth of $10,000 over 25 years at 9 % fixed
  • No rollover: after taxes and penalties becomes $24,637. (28%IRS, 5% state, 10% penalty, <59.5)
  • Rollover & tax deferred: $57,774.
transfer money to new employer s plan
Transfer Money to New Employer’s Plan
  • Advantages:
  • no taxes or penalties
  • consolidate different 401(k) and other IRA’s for convenience
transfer money to new employer s plan con d
Transfer Money to New Employer’s Plan (con’d)
  • Disadvantages:
  • employer may not allow it
  • may be waiting period at new job
  • new plan may not offer good funds
  • ability to control and access your money may be limited
leave your money with old employer
Leave your Money with Old Employer

Advantages: no effort, no taxes or penalties

Disadvantages:

(1) employer may not allow it

(2) old plan may not have good funds

(3) may have limited access to your money

(4) people and phone numbers change, and your old company may not last

rollover your money to a managed ira
Rollover Your Money to a Managed IRA
  • Advantages: no penalties or taxes
  • Managed account- HCM has discretion and will actively manage your portfolio
  • Retirement savings can be consolidated
  • On line, daily access
  • Account remains in your name
  • HCM fills out the forms for you
you spouse candidate for rollover
You/Spouse Candidate for Rollover?
  • Recently changed /changing jobs
  • anticipate retiring soon?
  • Have any retirement plans with previous employer?
  • Have any IRA’s not currently contributing to?
  • HCM fills out paperwork and follows up
are you a candidate for active hcm money management
Are You a Candidate for Active HCM Money Management?
  • No desire to manage your portfolios
  • Prefer to hire a professional money manager
  • Believe in active strategy vs. buy-and-hope
slide39

How Can HCM Help You?

  • Active management of your IRA, 401(k), or taxable accounts
  • 401(k) turn-key plan set up for companies
  • 401(k) rollover to IRA, HCM does paperwork
  • Alternate investment - accredited investors
  • Free consultation: 440-871-7278