Archive for Investment Planning

Nothing is Everything

I’m a fool for doing this, but I do read some comments on Facebook posts. I saw a rather touching one recently, where a young woman noted, “When you have kids, they’re your everything”. Boy, do I know what she means. In my uber-Mommy phase, I went so far as to wear a corduroy jumper  appliquéd with a teddy bear carrying a Christmas tree, just because it would delight my then-little daughter. Luckily there are no pictures.

Over time, I’ve also heard people declare their spouse, lover, job, and pets to be “everything”. Then there are the magic bullets we are asked  to believe in: the right eating program (vegan, low carb, low fat, clean eating, snore…), the cure for allergies, the perfect drug, the cure for pain—cancer—aging… Or the magic investment program that will make you a trillionaire without risk or worry or much effort on your part…gold, market timing, 1000s of methods of stock selection, buy and hold.

None of this is right or true.

Being the omniscient person that I am, I actually have the right method: diversify!

Let’s go with the personal, first. People who make kids, or a spouse, or any other person their everything tend to lose, not only that person, but just about everything else. So in the event of a divorce, or death, or just the time of life when they need to get their claws out of the other individual, they find they have nothing left.  My mom was my dad’s everything for more than 50 years; he disintegrated after her death. Kids grow up and you’re stuck with the spouse you used to have. Or you find yourself at 50, with no career, no wardrobe, out of date competencies, and a divorce. Sure, you love being with that adorable toddler, but make yourself get out without them. By 12 or 13, they won’t want to be your everything. I used to have a sign on my bedroom door:

Are you bleeding? Is the house on fire? Then, don’t knock.

Worked great with my kid. Not so much with the ex, which is at least one of the dozens of reasons he’s an ex.  And BTW, for heaven’s sake stop using your kid, dog, or cat as your FB profile picture. Your own identity will always be important.

All the magical bullet medicine is just one of the reasons I support universal healthcare. Hardly a day passes without some miracle nutritional scheme or magic cure on my Facebook feed.  The years since the discovery of penicillin and polio vaccines have made us all worship at the magic pill church—that there’s an easy cure for everything if we just swallow the (highly profitable to pharma and biotech companies) right pill or program of eating. Universal health care might put some restraints and cost controls on medipharma’s tendency to nuke everything, and if one bomb doesn’t work, 7 or 8 will be better. I’m way more worried about getting too much intervention than not enough.

Hearteningly, I am also beginning to see articles cautioning how over-medicated, endocrine disrupted, and un-resistant to bugs our bodies have become. Michael Pollan has offered us probably the most sensible advice: Eat food. Not too much. Mostly plants. No mention of juice cleanses or meal kits. Simple diversification.

And finally we get to my corner of expertise—investments. Scratch any two investment managers and you’ll find three opinions on what the correct investments are. What is the best allocation, the best asset classes, the best tax home? Does all this matter? Sure, that’s what we get paid for, and a good allocation can make a difference, a small difference but spendable in a big enough portfolio. But I’m here to declare something radical: the biggest difference is selecting a decent diversification and sticking with it.

That can be a target date fund. Seriously. I have some real problems and reservations about them, but it’s way better than putting all your money in the S&P 500 fund—which is still better than picking a stock or two that you’re sure is hot—or the so-called stable value fund. A target date fund gives you some diversity.

But should you put 50% of your stock allocation in U.S. and 50% in international? 2/3 US, 1/3 international? 10 funds instead of 12? In the big scheme of things, I can fiddle with allocation projections to give you just about any result you want, given your risk tolerance. But the best answer is—it doesn’t matter nearly as much as long as you diversify.

Accumulate something you haven’t spent on meal kits and Tofurky, then pick an easy, diversified fund. Once you get into 6 figures, you can start to benefit from selecting your own allocation—the small difference in specific allocations will start to be visible. And even though it’s heresy to many financial planners who salute the flag of mutual funds, I don’t think you’ll necessarily end up in a trailer by the river if you buy a few individual stocks. But don’t make those your everything, either.

Caveat: no specific investment advice is intended. Your individual investments should be selected based on your goals, risk tolerance, and other individual factors.

 

 

How to plan when you don’t know the future

Source: Yahoo finance

We live in uncertain times. I can’t think of any time in my life that that statement wasn’t true—we can never know the future. When it comes to investing and the stock market, predictions are pretty much worthless—since I bought my first stock at 28 years old, I’ve heard just about everything: don’t buy stocks now (whenever!), bonds are not really safe, Dow will hit 30,000, Dow will go down the tubes.

Most recently there was the expectation that the market would crash if the current incumbent was elected. Now there’s the worry that it will crash if he’s impeached. That might have some basis in fact. The S&P 500 declined about 50% from 1973 to Nixon’s resignation in August, 1974, according to this article. (While I remember Watergate, I wasn’t all that interested in the market at that time.) But as the article makes clear, a lot of other economic factors impacted that recession.

Analysis is perfect in retrospect. The best time to invest is usually some time before you did. Those of us who have faced challenging life circumstances—divorce, unemployment, illness—also know what it’s like to try to plan the future when that future seems radically altered. During those times, people often believe they have no future. But we always have a future (unless we’re dead); it’s just a different future than what we planned.

As I wrote in my client newsletter the day after the election (email me if you want a copy) we can take some protective steps no matter how uncertain our personal or political future seems.

Build an emergency fund

There’s just no substitute for this. In the middle of a crisis, it’s hard to increase it, so do your best to build it pro-actively. And if you’re in a situation where you need to draw it down, do so in the most frugal manner possible.

Improve your earning power

Get more education, build skills, get quality career counseling, and get out of the office and network. Think through ways to build a side income—gig economy, small business startup with LOW or no investment, whatever you can do.

Think through whether it really makes sense to quit your job to start a business: could you test the idea part time? Have you written a business plan and had someone else vet it?

Most important, guard against lifestyle creep. When you get a raise or earn extra, hold on to it! Use the improved earnings to build up your personal safety net.

Diversify your investments

For at least the past 10 years, I’ve been hearing how bonds are a terrible investment. During that same period of time, the Vanguard Total Bond Index mutual fund has had an annualized return of 4.17%–not great, but better than leaving it in your mattress, and beating inflation handily. People who had 40-50% of their portfolio in bonds during the 2007-2009 crash lost far less than those who were 100% in stocks. But in the doubling of the market after the crash, people who had abandoned stocks lost a ton of potential increases. Neither you nor I nor any of those genius active fund managers are going to make the right single bet on the market roulette wheel at any given time, so the safety move is to spread bets (investments) widely.

Take care of yourself

Making yourself sick is not going to cause one bit of change in an ex-spouse or corrupt politician. Eat well, see the doctor and dentist, exercise, and get a hobby—build yourself up and distract yourself with pleasurable activities to control how much you allow yourself to get worked up. People make very poor financial decisions under stress, so delay major decisions until you can think straight and get some expert input. On the other hand, don’t become paralyzed—not to decide is to decide (Harvey Cox)—and avoiding decisions for very long periods mean you’ve lost control over your own life.

Join something bigger than yourself

Times of turmoil are great times to join a group, take a class, do volunteer or advocacy work. You’ll feel less alone, find ways to get input on personal decisions, and learn how to exert influence on issues that concern you. Studying history, learning to draw, joining a book or investment club, or becoming active in a political group can all impact your personal success, life satisfaction, and ability to envision a future you can plan for.

 

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Retirement Accounts: keeping the advice sane and safe

When my daughter and I were at the Women’s March, I saw a number of signs saying I can’t believe I’m still protesting this sh*t (and they didn’t have an asterisk). I feel that way too, and I also feel that way concerning the fiduciary rule for retirement accounts. In fact, I can’t believe we’ve EVER needed to discuss this. The fiduciary rule was set to go into effect on April 10th of this year, but the so-called current administration has issued an executive order on February 3 delaying the order until—who knows?

What’s fiduciary?

The fiduciary rule is simply a requirement that your financial advisor–fee-only, fee-based, hourly fee, commissioned, or maybe roboadvisor (although that’s not quite clear)—be legally obligated to act in your best interest. How on earth is this even controversial? You’re paying for advice one way or the other and the advisor is allowed to act in their own best interests? And keep in mind that this fiduciary rule only applies to retirement accounts. Even so, the brokerage industry has fought it tooth and nail. They claim this rule will squeeze out the little investor who won’t be able to get advice. Give me a break—there’s plenty of fee-only advisors, many hourly, and (shudder) you can get some advice from the robos. At least they won’t skin you alive.

For eons now the SEC has been debating whether and how to employ the fiduciary standard for other investment accounts, and it looks like they’ll now be dithering until your children age into dental implants. Most people believe that any advisor they see is acting in the clients’ interest. Most people are wrong. So let’s take it from the top, yet again.

Difference between best interest and appropriate

Investment sales people (brokerages, bank investment departments, stock mongers, whatever) are only obligated to peddle something to you that’s appropriate for you, and boy, is that broadly defined. So, if it’s appropriate for you to be invested in the S&P 500, you can bet that you will be in the S&P fund that pays the highest commission to the broker, or that the brokerage pitches. I have never yet seen a broker-designed portfolio that included low-cost or no-load mutual funds, because even if those are in your best interests, they’re not in the broker’s best interest because they aren’t going to make any money from those funds.

How to get skinned alive

It can be even worse, depending on what you’ve blurted out to your broker. Before I ever became a financial advisor, my dad used a broker to invest his retirement savings. He adored T., who called him every few days—more than I did, as my dad liked to point out. He had told T. how he needed safety, but how he also wanted the most income possible. Dad had no idea that these were mutually contradictory statements. BTW, if you don’t know why, call me and I’ll explain. Since T. the broker had two options here, guess which one he took? The one that made T. the most money, which was selling my dad a whole raft of junk bonds—high income—which mostly went belly up, losing my 90-something father around $300,000 if my calculations were correct when I finally looked at what was going on in 2007. T. eventually exited the brokerage firm and dad was upset not because he’d lost so much money, but because T. didn’t call anymore; I have a sneaky suspicion it had nothing to do with ethics, sadly. My guess is he didn’t make his quota.

Despite all the firepower the brokerage industry could muster and all the rending of expensive business suits, the rule at best only applied to retirement accounts, which are presumably needy of more protection because—the only money the little guy has? A potential future burden on government support? Because people who have money in other accounts are sophisticated investors? Where’s my emoticon (dog running in circles) when I need one?

What, me worry?

I just saw an article where it was claimed that, well, not to worry. Since, the article argues, the brokerage industry has already moved toward the fiduciary standard for retirement accounts, they’ll do it anyway. With all due respect, I need that emoticon right away. I’ve noticed that when it comes to fleecing the consumer making the most money possible, or being freed from regulation, the brokerage and banking industry can move with lightning speed to change their policies, whereas when something is designed to protect the consumer, implementation will be as slow as regulators will allow. No regulators, no regulation. And please don’t tell me your broker is a nice guy and wouldn’t do that. I have some inherited very attractive “hi-yield” bond certificates I’d be happy to sell you.

Know what you’re getting

Really, with this new change, you have no hope but yourself (which is actually all you’ve got right now). How do you know you’re getting fiduciary advice? Ask you advisor to sign a statement, or review their registration brochure. Does it specify fiduciary? For all advice? Is there any mention on their website about being a member of SIPC ? (look in the tiniest print on the page, near the bottom)—that’s a broker. Next, look at what kind of investments they’re recommending. Are they no-load mutual funds? If not, why not?

I am a fiduciary. I’ll be happy to detail what investments I’m recommending, why, and exactly how I get paid. They’ll be in your best interests. Accept no less.

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