The actual investments you own don’t matter one bit if you can’t keep yourself from panicking out at the bottom. The value of a financial planner is not found in the investments he or she recommends, but in their ability to keep you from abandoning your financial plan when the world appears to be ending. The following graph of NET investment flows illustrates this point perfectly.
As you can see, in 2008 at the very bottom of the market $200 BILLION dollars was withdrawn from equity investments. “Investors” at that point were in such a state of panic that they were willing to sell at any price, including a loss of 50% over the prior 12 months. Those same “investors” are still down 50% because they moved all their money to bonds trying to be “safe.” Those of us that stayed the course, have largely recovered our losses. STAY THE COURSE!
If you noticed the bond bubble being created in 2009-2010, stay tuned for my next post.
Posted in Uncategorized
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Tagged Investing
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In 1968 Andy Warhol said that “In the future, everyone will be world-famous for 15 minutes.” I don’t think this qualifies for world famous, but I was quoted in the January edition of Kiplinger’s Magazine.
Several months ago I had reached out to Kimberly Lankford, contributing editor at Kiplinger’s, in regards to an article she had written on Long Term Care (LTC). I have enjoyed Kim’s work for some time, primarily because she focuses more on financial planning than on “ten hot stocks for 2011.”
Through the course of several emails and a phone interview, I was able to explain to her why Long Term Care Insurance (LTCi) was not a standalone decision, but rather a piece of one’s comprehensive financial plan. Kim appreciated my philosophy and quoted me extensively in her article titled “Long-Term-Care Rate Hikes Loom.”
My favorite quote: “We talk about risk management with our clients before we talk about how their portfolio is going to be invested,” says Matthew Jarvis, a financial planner in Seattle. “Who cares if you outperform the markets by x% if you lose it all to long-term-care expenses?”
Click Here to read the article.
Posted in Uncategorized
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Tagged Media
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“In the long run we are all dead.” -John Maynard Keynes (“father” of Keynesian Economics)
While I disagree with John Keynes on several economic theories, I can’t argue with his statement “In the long run we are all dead.” I often think of this quote when working with client’s whose nest egg could generate far more income than is needed to sustain their lifestyle.
Naturally this is much better than those whose nest egg doesn’t come close to meeting their lifestyle needs. However, dying with a mattress stuffed full of money is only slightly better than running out of money in retirement. Assuming you can maintain your financial security, why wait until you are dead before spending, and/or gifting, and/or donating the fruits of your lifetime of hard work?
This year I have met with several individuals who could use their portfolio to create a guaranteed income stream far in excess of their current and future income needs. Such an income stream, assuming it has been guaranteed for their lifetime, could be used for any number of things such a traveling, gifts to heirs, gifts to charity or even bonfires in the back yard (just kidding about the bonfires).
In the long run we are all dead. Don’t wait for the “long run” before (responsibly) making the most of a lifetime of hard work.
As you may know, I am actively involved in the Boy Scouts of America (BSA) program. As an Eagle Scout myself, I welcome the opportunity to help young men reach this same achievement. One of the ways I help is through being a merit badge counselor for Personal Management merit badge. Among other requirements, the boys are asked to explain what useful information can be derived from the price of a stock. When I asked for their answers to this question, I was saddened to see that they were already heavily influenced by Wall Street and the financial media.
Their answers included: “it tells you if the stock is a good buy” and “it tells you if the stock is going up or down in value.” After hearing their answers, I explained that the price of a stock is only useful when determining how many shares you can purchase with the funds you have available.
Despite the claims of thousands of mutual fund managers, stock brokers and hedge fund managers, the price of a stock (or its change in price) provides almost ZERO useful information about the future. I will never understand why claiming to know the future based on stock prices is somehow more respectable than trying to predict the future based on astrology, tea leaves, tarot cards or a “Magic 8 Ball.”
NOBODY can accurately predict the future of anything, let alone stock prices. Unfortunately, Wall Street and the Media have successfully indoctrinated society, including 14-15 year old boys, that somehow it is possible.
According the Deloitte Tax LLP, the average family of four earning $100,000 will see their tax bill increase by $4,500 in 2011 under the current tax laws. Married couples earning over $150,000 will see their tax rate increase by 10%.
The Estate tax will also be back in all its fury. Everything over $1,000,000 will be taxed as high as 60% and is due within 9 months of one’s death.
Here are the official charts. Please remember that while going from a 28% tax rate to a 31% tax rate is an increase of only 3% points, it will increase your tax bill by 10%.
Posted in Uncategorized
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Tagged Taxes
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The recession is officially over, maybe. As you have heard from countles
s sources, the National Bureau of Economic Research (NBER) announced that the recession officially ended, last year. As you may recall, NBER made its last stunningly obvious announcement in December 2008 that we were in a recession that had started December 2007.
What would have happened if you used the NBER announcements to time your investments? For ease of discussion, let’s say your only investment is the Dow Jones. NBER announced the recession 12/1/2008 when the Dow Jones was at 8,635. For next three months, this would have seemed like a brilliant time to sell as the market fell clear down to 6,600. However, as you waited for the NBER to announce the end of the recession, the Dow would have rallied to 10,753 (today’s close). Following the NBER cost you 25% vs. buy and hold.
While this is an extreme example, it is a helpful reminder that there is NO reliable system that can outsmart the market. I can only hope that the NBER and its staff of Nobel Prize winning economists do more with their $38,000,000 annual budget than make obvious statements about the health of last year’s economy.
Past performance is no indication of future results. The Dow Jones Industrial Average is an index in which one cannot be directly invested.
Posted in Uncategorized
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Tagged Economy
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Last week the Business Examiner cited a study showing “that 65% of Americans say a double-dip recession – defined as a recession followed by a short-lived recovery, followed by another recession – is now likely to happen.”
What a relief! If two thirds of Americans believe this, the worst must be behind us as the majority is almost always wrong. For example, in ’06-’07 the majority believed that real estate was the perfect investment and it would go up forever. In ’98-’00 the majority believed that internet companies would change the world and that their share prices would go up forever.
The world didn’t end then just as it won’t end now, because it never ends.
Posted in Uncategorized
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Tagged Economy
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In response to my blog post, Congressman Smith gave me a call. I was not able available at that time, so he left his cell phone number and asked that I call him back. When I did, Adam explained that he takes tax code reform very seriously and acknowledges that comprehensive reform is necessary. His reason for smiling/laughing at my question was the idea that he personally could set a date by which the tax law would be fixed. Until that day comes, he promised to continue advocating for truly comprehensive reform and not a debate focused strictly on one aspect of the code (i.e. the Bush Tax Cuts).
While I gave him a hard time during the Chamber of Commerce meeting and in my blog post, I continue to admire Adam’s ability to (in my opinion) see past the partisan bickering and truly work for the greater good.
Thank you Congressman Smith for reaching out to me and for all your hard work on my behalf (even if we don’t see eye to eye on every issue). You will continue to receive my vote.
Since I have your attention, please fix the tax code, end government waste and stop taking money from hard working Americans and giving it to those who refuse to work hard.
While you’re at it, world peace would be nice. Good Luck!
Courtesy of Ed Streit
Congressman Adam Smith was the featured speaker at last week’s Federal Way Chamber of Commerce luncheon. Among other things, Congressman Smith spoke about how uncertainty was hurting the economy. He specifically highlighted the uncertainty surrounding the income and estate tax laws. Toward the end of his presentation to this group of 100+ business owners and community leaders, he opened it up to general questions.
Having experienced firsthand the problems caused by tax law uncertainty, I raised my hand and asked “Speaking of uncertainty hurting our economy, can you give me a date by which you will have the tax laws figured out?” Congressmen Smith and the audience responded by laughing. Before he could give his reply I added “I’m not sure why you think this is funny. Congress’ lack of action has cost taxpayers and the economy billions of dollars. Why must you always wait until things are a complete mess before fixing it?” Unfortunately his response provided very little useful information and certainly did not include a date by which the tax laws would be fixed.
Needless to say, I am not holding my breath. In Congressman Smith’s defense, he is only 1 of 435 Congress People in the House of Representatives.
Changing tax laws are just one more example of the importance of ongoing, comprehensive financial planning advice.
At 7:45pm three friends and I crossed the finish line for the Seattle to Portland bicycle ride. 206 miles from the University of Washington to downtown Portland. It was a great experience that I don’t plan to repeat any time soon.
Pictured in the photo (from left to right) Jim McConville, Bret Goff, Bret Backman and me.
