Ray Lucia may have hole in "Buckets of Money" strategy

[REWahoo]

Federal regulators on Wednesday charged nationally syndicated radio personality Ray Lucia with spreading misleading information about his "Buckets of Money" strategy at investment seminars.

SEC: Talk show host Lucia spread misleading info - MarketWatch

 

[donheff]

Not a lot of info on the case. The SEC says Lucia's claim that the "buckets" strategy was empirically back-tested over previous bear markets is false.

 

[Bikerdude]

And they (SEC) let Dick Fuld run free.

 

[Onward]

Ouch.

 

[teejayevans]

Anybody listen to his radio show, wonder if he made a comment?
TJ

 

[brewer12345]

Since he has always set my Kiyosaki-sense tingling, I cannot say I am surprised.

 

[ejw93]

I don't understand why the SEC is going after Ray.

I like listening to his podcasts and have a copy of his first book.

Most of his advice is spot-on and I agree with almost all of it. He does not rely on hot stock tips or sound effects to provide an entertaining and informative show. Among the self-proclaimed financial media 'experts', Ray is one of the few who can actually spell (and use) HP12C.

From speaking with a family member who went to an RJL seminar, Ray's seminars cover the Buckets strategy, but may also contain a veiled sales pitch to purchase non-traded (commissioned) REITS.

Is this any reason to be targeted by SEC? Maybe the SEC went after him b/c he goes against the grain on most of the financial services industry advice. He encourages his listeners/customers to engage their brains and develop a goal-oriented strategy, where the brokerage houses say, "Just give your money to us, and we will actively manage it for you or put it in a passive 'target date' fund".

 

[teejayevans]

The SEC has been caught with its pants down so many times (Madoff, etc), I think they just going after any high profile targets, as they should...
TJ

 

[mickeyd]

I

don't understand why the SEC is going after Ray

They let Bernie Madoff slip thru their fingers. Gotta get someone...it election time!

 

[photoguy]

I don't understand why the SEC is going after Ray.

[Text Removed]

Is this any reason to be targeted by SEC? Maybe the SEC went after him b/c he goes against the grain on most of the financial services industry advice. He encourages his listeners/customers to engage their brains and develop a goal-oriented strategy, where the brokerage houses say, "Just give your money to us, and we will actively manage it for you or put it in a passive 'target date' fund".

I know nothing about Lucia other than the linked article. But if the article is correct and Lucia claimed that he backtested his results but didn't actually do so, that's fraud. Knowingly misleading others for his personal gain.

 

[Milton]

From speaking with a family member who went to an RJL seminar, Ray's seminars cover the Buckets strategy, but may also contain a veiled sales pitch to purchase non-traded (commissioned) REITS.

Sounds like the OSC's (successful) prosecution of Brian Costello.

 

[jazz4cash]

I went to one of his seminars and it was very entertaining and informative like his radio show. I don't recall any claims of back testing. The buckets strategy is so generic I don't see how backtesting would be possible except in the broadest possible definition (e.g. short term- cash, intermediate-bonds, and long term-stocks). OTOH he does push the REIT strategy much more in person than on the air and I could see some regulatory interest in that area as I did feel it was sort of a low pressure bait and switch for inexperienced investors.

 

[photoguy]

This article goes into a lot more detail about the SEC charges against Lucia:

National radio personality faces SEC investment fraud charges

 

[donheff]

This article goes into a lot more detail about the SEC charges against Lucia:

National radio personality faces SEC investment fraud charges

Basically he ginned up a two page spreadsheet from the 1990's, used 3% inflation instead of the higher actual inflation, never updated his data, and admitted that what he did would show better results than reality. He used this pitch to attract clients to his advisory services. All of this violated the Investment Advisors Act. He was probably reported by a disgruntled client and all it took was one visit from an agent to unmask him.

Sort of sad. A likable guy stands exposed as just as pathetic as a typical variable annuity salesman. I remember looking into the buckets strategy when we talked about it here a few years back and being irritated that he pitched the concept but never would discuss when and how one would refill the buckets -- presumably, you had to pay for that info. Now it sounds like there was nothing to find out.

Still, this is the best the SEC can do to protect us?

 

[MichaelB]

Basically he ginned up a two page spreadsheet from the 1990's, used 3% inflation instead of the higher actual inflation, never updated his data, and admitted that what he did would show better results than reality. He used this pitch to attract clients to his advisory services. All of this violated the Investment Advisors Act. He was probably reported by a disgruntled client and all it took was one visit from an agent to unmask him.

Thanks for summing up the link

Sort of sad. A likable guy stands exposed as just as pathetic as a typical variable annuity salesman. I remember looking into the buckets strategy when we talked about it here a few years back and being irritated that he pitched the concept but never would discuss when and how one would refill the buckets -- presumably, you had to pay for that info. Now it sounds like there was nothing to find out.

+1

Still, this is the best the SEC can do to protect us?

Why not? If they only go after the "top $" violations they effectively allow some lawbreakers to fly under the radar without fear. They need to demonstrate they are enforcing the law across the board.

What I would find disturbing would be a harsher penalty for the smaller violations.

 

[ziggy29]

Sort of sad. A likable guy stands exposed as just as pathetic as a typical variable annuity salesman. I remember looking into the buckets strategy when we talked about it here a few years back and being irritated that he pitched the concept but never would discuss when and how one would refill the buckets -- presumably, you had to pay for that info. Now it sounds like there was nothing to find out.

This was always my hangup about the idea, which sounds solid in theory. At least the usual AA models with rebalancing have clear triggers that tell you when, and how much, of your money to move around. As a result it was (a) not subject to twin human wealth-killing emotions of greed and fear, and (b) it could be thoroughly backtested. With the Buckets approach to AA, the timing of that decision -- and how much to move -- seems subject to guesswork and, therefore, human emotion.

To me the attraction to an AA model is largely that it *does* eliminate arbitrary timing and emotion from our investment moves.

 

[samclem]

Sort of sad. A likable guy stands exposed as just as pathetic as a typical variable annuity salesman. I remember looking into the buckets strategy when we talked about it here a few years back and being irritated that he pitched the concept but never would discuss when and how one would refill the buckets -- presumably, you had to pay for that info.

Yes, I remember at least one of your threads on Lucia's buckets. I think it was the first time I'd heard of the method, and there was a lot of good info presented here.

Still, this is the best the SEC can do to protect us?

I think it's good work on their part. Tens of thousands of middle-income retirees folks losing tens of thousands of dollars each is at least as tragic as a few dozen folks losing millions each.

Maybe Ray can share some notes with Wade Cook. (well, Mr Cook was quite a lot "dirtier" than Ray)

Folks want to find a single guru who can show then how to have a safe retirement. They get taken to the cleaners by local advisors/brokers/insurance salesmen and they get taken to the cleaners on a wholesale level by national personalities. There's no good substitute for learning enough to do this yourself. An acceptable substitute is just to hire someone by the hour and then go to someplace like Bogleheads or here to get an opinion before plunging in.

"When you believe in things that you don't understand,
then you suffer.
Superstition ain't the way"
---Stevie Wonder, "Superstition," 1972.

 

[haha]

What I would find disturbing would be a harsher penalty for the smaller violations.

Which is exactly what we get. The big cheats are bankers and politically powerful market participants that can screw a whole country, even one as big as the US. And moronic politicians who espouse hopeless programs that we taxpayers will be paying for forever.

This is just like rounding up the girls in short skirts standing on the corner, and ignoring the more powerful people behind the trade, who are more lucrative to law enforcment and politicians.

Few people who think it through could be fooled that calling money buckets could in any way affect the reality of unfolding events. So if someone does poorly following one of these schemes, he should consider it reality adjustment tuition. Even imagining that the government should be expected to sign off on every hare-brained scheme that some guru comes up with may make the more gullible members of the public more vulnerable, rather than less so.

Ha

 

[mathjak107]

i saw rays rebuttal on his web site. he focused in on the fact he used 3% inflation figures at a time inflation is higher.

i dont fault him for that as thats the norm we typically run with as an average.

i dont like the way he danced around the backtesting issue at all and that bothered me. it was like a smoke and mirrors thing to avoid talking about it.
ethically he did a wrong thing and for that ill no longer be recommending him as a source for info and strategy although i still think

he is very smart and really does have a good bucket strategy that looks like it could work well even if it wasnt back tested.

but alot of people use him as their money manager and advisor because they dont want to monitor or do things on their own.

as silly as it is to some of us if they put their money in his hands based on the fact the past looked okay then that was a very unethical thing to do to your clients who trusted your plan was fully tested and they werent the pioneers.



most of us here who are knowledgable are like test pilots and we monitor the pulse of our portfolios all the time. those folks

who hired his management services thought they were getting a fully tested aircraft that went through a proven battery of tests before they flew it.

 

[donheff]

he is very smart and really does have a good bucket strategy that looks like it could work well even if it wasnt back tested.

As I mentioned above, I never saw any answers to how the bucket strategy works in practice. All the theories on when and how you would drain and refill buckets were approaches chosen by bucket enthusiasts. Ray never explained it. Presumably, he would advise you how to do it if you hire him but, if so, that means you have to accept that he has a good methodology on faith.

 

[mathjak107]

there really are 2 ways ...

a less aggressive way which should result in lower overall gains is rebalance whenever markets are higher and your down on buckets 1 and 2.

the more aggressive way would be letting buckets run close to empty and allowing the stock bucket to grow untouched for 15 years.

thats a bit aggresseve for me taste. you can be 80 and almost 100% in equities.

the good thing is 15 years out odds are good you will be higher when you sell equities.,.

 

[teejayevans]

Ric Edelman just slam Ray on his radio program. He highlighted the 3 problems: backtesting in general is flawed, bogus inflation rate (if you backtest, you have to actually use all the data, you can't pick and choose), and his current strategy is different from the strategy his backtested.

Backtesting is used all the time by those gold ads (if you had bought gold back at its low, today it would be worth...) so I understand the problem with it. But almost every financial academic study does it.

The basics of the strategy is good, have less volatile investments for the short term, so you can wait for the market to come back. But the non-traded REITS and annuities I'll do without.
TJ

 

[donheff]

there really are 2 ways ...

a less aggressive way which should result in lower overall gains is rebalance whenever markets are higher and your down on buckets 1 and 2.

the more aggressive way would be letting buckets run close to empty and allowing the stock bucket to grow untouched for 15 years.

thats a bit aggresseve for me taste. you can be 80 and almost 100% in equities.

the good thing is 15 years out odds are good you will be higher when you sell equities.,.

Yup, I got that from our threads on the topic too. But you didn't see it described by Ray did you? Nor did you see anything from him like a specific methodology dealing with approach number 1, like how to determine when the market is up sufficiently to start refilling and how to much to pour in based on how much the market has risen did you? I understand that there are lots of possible answers but Ray never describes how to think about them nor does he give examples. I suspect he makes you pay for his services to find out and then leaves you with some vague sentiment amounting to "you have to determine your personal risk profile and then decide for yourself." Thanks a lot. At least standard AA/re-balancing approaches give you some specific examples to consider.

 

[teejayevans]

like how to determine when the market is up sufficiently to start refilling and how to much to pour in based on how much the market has risen did you?

Since he recommends using non-traded REITs and annuities, which limit your ability to rebalance, it's not surprising he doesn't detail this. I think now would be an excellent time to rebalance IMOHO.
TJ

 

[mathjak107]

Everything doesnt get rebalanced before the time frame is up.

All rebalancing is based on years of money,not performance.

The untraded reits typically have a 6-7 year time frame until they are liquidated.

The annuity acts as a pension and is always in plce unless you do a gic contract for a set amount of years