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RYON & FRIDSON: RELIABLE RETIREMENT INCOME TRANSCRIPT

August 2, 2015

Believe it or not, both short and long term interest rates are at a 5,000 year low. And no, that is not a typo. No wonder there is a global search for income! On this week’s WEALTHTRACK we are discussing how to find reliable income producing investments for retirement. Thornburg Investment’s Five star rated municipal bond manager, Chris Ryon and fixed income guru Martin Fridson reveal their secure income strategies.

CONSUELO MACK: This week on WEALTHTRACK, as sources of income either dry up or become too expensive our intrepid guests , five- star rated municipal bond fund manager Chris Ryon of Thornburg Investment Management and fixed income guru, Martin Fridson of LLF Advisors find streams of income in out of the way places, next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. As a journalist I am the fortunate recipient of research from some of the financial industry’s top firms. One of the headlines that caught my attention recently came from Bank of America Merrill Lynch. It read: “The Lowest Interest Rates in 5000 Years.”

I knew that rates were at record lows but I had no idea that it went back five millenia. Here’s the chart. Yup, it starts at 3000 BC. It shows both short term and long term interest rates and it takes us, in a very compressed fashion, to the present 5000 year low. That’s what I call putting today in historical context!

It is no wonder that there is a global search for income. Of course not all interest rates are trading at record lows. Indeed some have been going up, especially where there is trouble.

Take triple tax exempt municipal bonds issued by Puerto Rico, whose credit rating was reduced to junk status last year. The U.S. territory is the third largest municipal bond issuer in the country, after California and New York despite the fact that its population is the size of Oklahoma’s and its GDP is smaller than that of Kansas. Unfortunately and not surprisingly, it is broke, which is why its rates have soared.

But issuers such as Puerto Rico and Greece are the exception not the rule. Government and corporate bonds have been in a three decade bull market, driven higher as interest rates fell, which led stock investor Warren Buffett to opine as early as 2012 that “Bonds should come with a warning label.”

Should they? Where else can you go for income? This week’s guests are two income pros.

Martin Fridson is the Chief Investment Officer of Lehmann Livian Fridson Advisors, a wealth management firm specializing in income investing that he co-founded in 2013. Fridson is a recognized expert in fixed income. Once dubbed the “Dean of the high yield bond market” he was the youngest person ever inducted into the fixed income analysts society hall of fame. Christopher Ryon is a Municipal Bond Portfolio Manager at Thornburg Investment Management. Among the multiple funds that he manages is the Limited Term Municipal Fund, rated five-star by Morningstar. Before joining Thornburg in 2008 Ryon was the head of the Long Municipal Bond Group at Vanguard Funds where he oversaw the management of more than $45 billion dollars in 12 intermediate and long-term muni funds. Thornburg is a sponsor of WEALTHTRACK but Ryon is here because of his independently recognized track record.

I began the interview by asking both guest if bonds should indeed now carry a warning label?

CHRIS RYON: Bonds have an important place in a well-diversified portfolio. Yes, we’re at the tail end or what appears to be the tail end of a 30-year bull run in bonds, but investors should realize there’s a reason to keep them in their portfolios. You want to have stocks, bonds, real estate, cash even though it doesn’t yield a lot, and the reason being is it provides ballast in case we’re wrong and rates stay at a low level for a prolonged period of time, and they also move counter cyclically to your stock portfolio. So in a well-diversified portfolio they have an important place even if in today’s environment they are overvalued.

DOLL: BIG BUSINESS TRANSCRIPT

July 24, 2015

How expensive are large company U.S. stocks, the cornerstone of just about everyone’s retirement portfolio? Nuveen’s widely followed Chief Equity Strategist and large cap mutual funds manager, Robert Doll says there are high quality, dividend paying businesses worth owning for long-term value and income.

CONSUELO MACK: This week on WEALTHTRACK, picking the perfect portfolio potion for earnings and dividend growth. Nuveen’s star strategist and large cap funds Portfolio Manager Bob Doll shares his formulas for long term portfolio performance next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. Two of WEALTHTRACK’s most enduring investment themes in the decade since our launch Have been the power of compounding and the wisdom of diversification. The results over time of compounding, reinvesting dividends, capital gains and interest has been described as the most powerful force in the universe.

For instance $10,000 invested for the last ten years in the S&P 500, without re-invesing dividends and capital gains would be worth $17,318 dollars today. That’s an annualized return of nearly 6% and a cumulative return of 73 %.

But take that same ten thousand dollar portfolio, and reinvest the dividends and capital gains and you would have more than doubled your initial investment to $21,377, and gotten annualized returns of nearly 8% and a cumulative gain of 114%.!

As far as diversification goes the reality is that many investors are not that diversified among different asset classes. And in their stock portfolios they tend to hold hefty chunks of large company U.S. stocks in both actively managed and index funds.

It turns out that was not a bad position to be in over the last decade, especially during the now seven year old bull market when U.S. stocks ended up outperforming many international ones. As we just described $10,000 invested in just the S&P 500, with dividends and capital gains re- invested would have more than doubled your money.

That same $10,000 invested in a portfolio equally invested in the S&P, plus U.S. small cap and mid cap stocks and foreign developed country stocks and emerging market ones would have netted you about $500 more.

In retrospect, for this decade at least, diversifying by size and geography hardly seems worth the trouble! Is it? And what is the outlook for those large cap U.S. stocks that dominate so many portfolios?

This week’s guest specializes in that popular category and has been a WEALTHTRACK guest since the very beginning. He is Robert Doll, Chief Equity Strategist and Senior Portfolio Manager at Nuveen Asset Management where he manages the firm’s large cap equity series which includes running at least nine mutual funds including the traditional large cap value, growth and core funds, three large cap specialty funds: Nuveen Core Dividend, Concentrated Core And Growth and three alternative funds: Core Plus, Equity Long/Short and Market Neutral funds. Doll also writes widely followed Weekly Commentaries and 10 Annual Predictions, for which he recently did his midyear review.

I started the interview by asking Doll how expensive large cap stocks have become?

BOB DOLL: Well, they’re a lot more expensive than they used to be after the stock market’s tripled in the last six years, but earnings have done really well, Consuelo, and therefore their price/earnings ratios or other ways to measure valuation, they’re not all that expensive, and I’d go another step to say relative to other places you can put the money … cash, bonds … stocks are not expensive.

CORTAZZO & FRANKLIN: SUCCESSFUL RETIREMENT TRANSCRIPT

July 17, 2015

When you retire and how you invest can mean the difference between a comfortable retirement and a disastrous one. How do we go the distance in retirement without running out of money? Award winning personal finance experts, Macro Consulting Group’s Mark Cortazzo and InvestmentNews’ Mary Beth Franklin share their strategies for retirement success.

CONSUELO MACK: This week on WEALTHTRACK, two personal finance champions show us how to train for the big retirement race, keep our portfolios in shape and able to go the distance. Macro consulting’s award winning Financial Planner Mark Cortazzo and InvestmentNews’ Social Security maven Mary Beth Franklin share their retirement workouts next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. As WEALTHTRACK celebrates its tenth anniversary year we have invited some of our regulars back to discuss how much has changed and how much remains the same since 2005.

One thing that has changed for everyone is that we are all ten years older, no exceptions, ten years closer to retirement and in some cases our viewers are now in retirement.

Another big change over the past decade is that interest rates have plummeted. Short term interest rates have been at or near record lows ever since December of 2008 when the Federal Reserve lowered its key short term interest rate, the Federal funds rate to zero. Much of the rest of the world has followed by lowering their official lending rates. That has set off a worldwide search for income.

Another major shift has occurred in stock prices. The S&P 500 which began WEALTHTRACK’s launch at the 1,222 level in July of 2005 peaked in October 9th of 2007, only to suffer its biggest decline since the 1930s, a 57% drop to its March 2009 low during the financial crisis. It took years for the S&P to surpass its old high.

According to one of this week’s guest’s award winning Financial Planner Mark Cortazzo when you retire and how you invest can mean the difference between a comfortable retirement and a disastrous one.

He cites three hypothetical examples. He calls them the “Three Brothers”. They each retire with a million dollars, they each withdraw 60,000 a year, or 5,000 a month, but retire three years apart. Brother 1 retires in 1997, as the tech bubble was gaining steam.

Brother 2 retires in 2000 at the top of the market, just before the tech bubble bursts and Brother 3 retires in 2003 as the credit bubble that imploded in 2009 was in its infancy.

But here’s the scary part. By 2015 there was a wide discrepancy in their investment results and under one scenario the middle brother had almost run out of money.

Scenario one has them all investing only in the S&P 500, by 2015 Brother 1 had $1.64 million in his portfolio… Brother 2 had only $63,945 left in his retirement account! And Brother 3 had $1.65 million.

Scenario two has them all investing the million dollars in a diversified stock portfolio, evenly divided among five asset classes, international developed country stocks, U.S. small cap, large and midcap and emerging market stocks. The results were quite different and much improved. Brother 1 would have doubled his money to nearly $2 million, Brother 2 would have one million, what he started his retirement with and Brother 3 would have $2.4 million.

What are the lessons to be learned from these outcomes?

Joining us is Mark Cortazzo, a Certified Financial Planner, Founder and senior partner of Macro Consulting Group, an independent financial planning firm established in 1992. Cortazzo was recently named to the Barron’s Top Advisor List for the seventh consecutive year, among many other recognitions.

Mary Beth Franklin is contributing editor at InvestmentNews, a leading trade publication for financial advisors. She is an award winning personal finance journalist, a recognized expert on Social Security and the author of a recently published book, “Maximizing Your Social Security Retirement Benefits.”

I began the interview by asking them why there was such a huge and frightening discrepancy among the “Three Brothers” portfolio results, especially under scenario one when they each invested their million dollars in the S&P 500.

MARK CORTAZZO: Really the only difference between the three brothers was the day they turned 65 and what happened the following three years. The first brother, the first three years the market went up, and they were taking withdraws from profits. The second brother, the market started going down, and those withdraws were eating into the principal, and the percentage of the remaining account value that that withdraw represented got bigger and bigger, and you get to a point where even if you have very strong performance and it’s on a small dollar amount, it’s still not enough to overcome that withdraw, and this cascading effect continues to erode your principal even in a bull market.

CONSUELO MACK: Right, and then the third brother …

KESSLER: TREASURY BOND CONTRARIAN TRANSCRIPT

July 10, 2015

On this week’s WEALTHTRACK, our guest is taking on the Wall Street consensus. The overwhelming sentiment from economists, analysts and strategists is that the great bond bull market, particularly in U.S. Treasuries, is over. Treasuy bonds have been described as extremely overvalued, risky and undesirable. Not so says global bond manager Robert Kessler. He is sticking with his decade long, bullish view on Treasuries and says the Federal Reserve is in “no position to raise interest rates.”

CONSUELO MACK: This week on WEALTHTRACK, rock climbing bond manager Robert Kessler continues to chart his own course and reach for U.S. Treasury bonds, while other investors say they are too risky to own. Why Kessler says Treasuries are the safest route in a treacherous climate, next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. Ever since WEALTHTRACK was launched ten years ago Wall Street has consistently gotten one prediction wrong. How many times have you heard economists, analysts, strategists, columnists and yes even Federal Reserve officials warn us to prepare for rising interest rates?

The overwhelming sentiment has been that the great bond bull market, particularly in U.S. Treasuries was over. Treasury bonds have been described as extremely overvalued, risky and undesirable.

And on occasion they appeared to be right. There have been several periods, some recent when yields have gone higher, or “backed up”, as they say in the bond world.

The one lone and dependably contrarian voice against this anti- Treasury chorus has been a WEALTHTRACK guest since the beginning. He was correct back in 2005. He has been through the years since, and he might prove to be right still.

He is Robert Kessler, Founder and CEO of Kessler Investment Advisors, a manager of fixed- income portfolios with a specialty in U.S. Treasuries, for institutions and high net worth individuals globally. Now for years Kessler and his team have been tracking several indicators that continue to convince them that rates will remain low. One is not widely followed by the public, but it is by Federal Reserve officials. It’s called the “Output Gap” and it measures the difference between the economy’s actual growth and its potential. In this case between real GDP, that’s ex-inflation and the congressional budget office’s measure of potential GDP growth. The gap is currently about 2.5%.

For an economy growing around 2.2% throughout the recovery that slack in the economy is sizable. As the New York Fed wrote recently: “Resource slack by this measure seems larger than that implied by most estimates of the unemployment gap. Historically, inflation tends to be restrained if the economy is operating below potential.”

Restrained it is! Another key piece of evidence cited by Kessler for continued low rates is inflation. As you can see from this chart of a measure of Consumer Price Inflation – in this case the core PCE, or Personal Consumption Expenditure Price Index, excluding food and energy prices, inflation has been running well below the Federal Reserve’s target of 2%.

I began my conversation with Kessler by asking him why, in his opinion, the Fed is in no position to raise interest rates.

ROBERT KESSLER: The Fed would raise interest rates if in fact their mandates were at the levels they should be at, and their mandates are inflation or the stability of rates.

WINTERS: MARKET MANIA? TRANSCRIPT

July 3, 2015

CONSUELO MACK: This week on WEALTHTRACK, are index funds raging out of control? Are these passive, low-cost funds actually a threat to retirement savings? Wintergreen Fund’s noted value investor David Winters sounds the alarm next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. As we celebrate our tenth anniversary year on WEALTHTRACK we have been taking an in depth look at one of the biggest investment trends for the past decade, the huge migration of both institutional and individual investors from actively managed funds to passive, index- based ones, especially ETFs. As we have reported before, index funds now account for a third of fund assets up from 14% ten years ago.

And recently, Exchange Traded Funds, or ETFs, have seen the lion’s share of the fund flows. As Morningstar has reported, U.S. ETFs have more than two trillion dollars in assets compared to nearly 13 trillion for mutual funds. That means 14% of funds assets are now in ETFs up from a mere 4% ten years ago.

During the current six year bull market index funds have outperformed the vast majority of actively managed funds. In addition the cost benefits of index funds are considered to be overwhelmingly in investors favor, especially when compounded over time.

The asset-weighted expense ratio for passive funds was just 2/10 of a percent in 2014, compared with 8/10 of a percent for active funds. Even investors in active funds are opting for lower cost ones. During the past decade the lowest cost quintile of active funds received $1.07 trillion of the total $1.13 trillion of the net new flows into all actively managed funds. With better performance and lower costs it’s hard to find anyone critical of these developments, but we have one with us today. Not surprisingly he is an active fund manager.

He is David Winters, Chief Executive Officer of Wintergreen Advisers and Portfolio Manager of the Wintergreen Fund which he launched in 2005. Winters was nominated for Morningstar’s International-Stock Fund Manager of the year award in 2010 and 2011. He has been a WEALTHTRACK regular since the beginning because his traditional value –oriented, global approach worked for years. But the last five years have been rough with the fund underperforming its benchmark and Morningstar World Stock category.

I began the interview by asking Winters why he thinks the move to index funds is a dangerous market mania.

DAVID WINTERS: Well, the idea of index funds, Consuelo, is fine, but what’s happened is it’s become this universal truth, and people have poured more and more and more money into index funds and because the way it works is they’re capitalization weighted.

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