Chutes and Ladders

The board game Chutes and Ladders represents a journey through life, with its ups and downs, unexpected surprises and sudden disappointments.  

Life rarely works out as we hope, plan and dream about. Unpredictable things occur. Change happens.

We all have to deal with job changes, health issues, relationship struggles and volatile financial markets.

We view our role as your financial advisor very broadly, so that we can help you with the chutes and ladders of life’s uncertainty. We understand these events have emotional and financial effects on you, your family and your financial plan.

Dealing with the unpredictable Chutes and Ladders of life from our clients’ perspective was the main theme of the 2017 BAM Alliance Annual Conference which we attended this past week.

The chutes and ladders of life. We all have a personal story.

I have dealt with my own chutes and ladders. My dad left our family when I was a teenager. I attended the college I dreamed of (on financial aid, loans and work study jobs) and worked at Price Waterhouse. I got married, had three children and a good career. Life was good. I did not plan for a divorce in 2008. I did not expect to remarry five years later in 2013.

We can learn from change, become better people and be more resilient. Life gives us second chances.

My daughter’s pediatric scoliosis was under control in June 2011 (see blog post link 6/24/2011). A routine check up in December 2012 resulted in spinal fusion surgery in January 2013. We faced decisions. We had confidence in her amazing doctor. We trusted her with our child. We signed very scary papers the morning of her surgery. Rachel now has the equivalent of two titanium golf clubs in her back and is fully active. When we got in the car for a trip this summer, “Titanium” came on the radio. “My theme song,” she exulted! A chute had turned into a ladder.

Sometimes you fall through the chute later in life. A spouse passes away. Or a spouse files for divorce. We have helped clients who are surprised by a divorce after many decades of marriage. We provided compassion, empathy and support to help them get through the day to day shock and transition to their new life.

Sometimes the ladder goes higher than you ever expected. You are blessed with good kids and grandchildren. A career change exceeds your expectations. A key decision becomes life-changing. Keith and I feel fortunate, as our transition from conventional CPAs to full-time financial advisors and the growth of our firm has been remarkable.

We have advised clients who had business or real estate successes. We have guided clients through the chutes and ladders of business sales.

We listen to clients who share the pains and stresses of very serious illnesses or issues which affect their children or grandchildren.

We are rationally optimistic, both in our personal and professional lives. This rational optimism is inherent in the broad financial advice and counsel we give to our clients.

Unexpectedly, investments go up. Unexpectedly, investments go down.  The decline is always temporary, but it can be shocking and emotional to experience and live through in real time. In 2008-09, we were a listening board for our clients. They wanted to talk. They shared their fears and concerns. We listened. We answered questions. We helped our clients to stay the course, so they could adhere to their long term written investment plan. This was the right strategy then and it will be the right strategy the next time the stock market has a significant decline (and the temporary declines after that).

Gratitude is an important component of success and happiness, yours and ours. We are truly grateful for our clients.

We are not here to sell you products.

We are here to help you through the chutes and ladders which life throws at you. To help you cope with uncertainty. Financial and otherwise. Not all the squares on the board fall neatly into the description of the typical wealth advisor. We don’t strive to be typical. We do strive to provide encouragement, guidance and support when you need it most.

This is our value. We are here for you.

In good times and bad. In whatever way we can help.

This week’s takeaway: Life happens. It is full of chutes and ladders. Some of our value as your financial advisor is to help you deal with the unexpected surprises in your life (good and bad) and help you make good decisions in a rapidly changing world filled with uncertainty.

Decisions: Past, Present and Future

What do you have from 2002 or 2003 which you still value?

What relationships? Any investments? Any stocks or stock funds?

What did you acquire or begin 15 years ago which are still important to you?

Remember, in 2002, the iPhone and Facebook had yet to be invented, Netflix came by DVDs in the mail and Blockbuster stores were still everywhere. Lots has changed since then!

In October 2002, I attended my first BAM National Conference, when we were initially investigating how to provide investment advisory services. I quickly realized BAM Advisor Services was the right group of people with the right tools and ideas for us. BAM would be the source for the investment philosophy and intellectual resources we would need to advise our future clients.

Our introduction to BAM and their investment philosophy led us to the investment approach of a major and growing mutual fund group, Dimensional Fund Advisors (DFA), which would become the primary stock mutual fund provider for the vast majority of our clients’ stock investments. We have been pleased with this decision.

For the 16th straight year since 2002, I will be traveling this weekend to attend the BAM National Conference in St. Louis.

Have you done anything for 16 straight years? If you have, and you were not going under duress, it must be very worthwhile, right?

As we are nearing our 15th year of providing investment advisory services, we realize the critical importance of these early decisions. These decisions have had a direct and very positive impact on each of you, our clients.

We often say that we cannot predict the future. It’s true….we can’t!

However, you rely on us to help you assess and deal with an uncertain future. You expect us to make good decisions, even with uncertainty, which will have long and important implications for you and others close to you. You judge us by the advice and decisions we make.

When it comes to the quality of these vital decisions, selecting BAM, DFA and our investment principles, we are confident that we selected firms and concepts that would, and have, withstood the test of time, through good and bad markets.

As we look back, and forward, our relationship with BAM and use of DFA funds have been integral in the development of our investment philosophy.  BAM is also a key factor in our firm’s delivering excellent, accurate and responsive service to our clients.

DFA’s stock mutual fund philosophy was new to us in 2002. Today, we feel that DFA is the foundation for the best way to invest serious money for the long term. They have consistently beaten or out-performed their asset category averages over the 15 year period ended September 30,2017.** They are reliable. They are very low cost. They offer tax-efficient funds, whichlower your tax bills for non-retirement accounts. They are not dependent on one or two star money managers or analysts for their results. They have a methodology and culture which we are confident will provide strong returns well into the future.

DFA confirmed their 15 year outperformance relative to benchmarks and similar competitor funds across a variety of investment categories in a chart this week. This data, available upon request,** shows that DFA funds we have utilized and recommended for the long-term have performed near the top of their respective categories, far above most other funds in respective categories and have outlasted the 30-50% of funds which existed 15 years ago that have not even survived the 15 year period ended September 30, 2017.

We are confident in the long term expected returns of DFA’s stock mutual funds. “Combining the category attrition and the surviving funds with lower net return ranks gives a better sense of how Dimensional’s equity funds have fared relative to their peers…The results suggest that investors in Dimensional’s equity funds would have enjoyed strong relative performance over the past 15 years in each of the equity asset classes shown.”**

We cannot predict the future, but we are confident in our decision making. As the world, and the financial markets specifically, are continuously evolving and changing, we and the firms we work with must also continue to grow, change and be continually learning. We are always open to new ideas and concepts.

This is why we continue to attend the BAM Annual Conference every year. These are not rah rah sales sessions. This is why Keith and I travel to participate in multiple peer-peer learning group sessions every year and peer calls throughout the year. We ask questions. We listen to top speakers across diverse topics. We discuss client issues. We gain knowledge we can bring back and use as we provide advice and guidance to you, our clients. That is part of what we will be doing from Saturday until Tuesday with our BAM investment peers from across the country.

 

This week’s takeaway: In 2002-03, we began the process of forming and starting what is now WWM, a thriving financial advisory firm. We partnered with BAM Advisor Services and began to invest and recommend DFA stock mutual funds. We expected that each of these firms would provide us and our clients some of the following characteristics: excellence, confidence, reliability, valuable information and consistency.We made the right decisions and they have delivered on our expectations.  For the benefit of our clients.

 

**Source: Dimensional chart and supporting data: “Relative Performance of Flagship Equity Funds,” as of September 30, 2017. Published October, 2017. Available upon request.

What if?

What if International and Emerging Market stocks continue to outperform the US stock markets? That would be considered normal, and why we recommend being globally diversified. These asset classes underperformed for a number of years, so this was expected, we just didn’t know when it would occur.

What if the market dropped 10-20%? That would be considered normal and you should be emotionally prepared for this to occur….repeatedly in the future. These declines are always temporary, as part of the market’s long term growth. There has not been a 10% decline in US markets since the first six weeks of 2016, which is unusual.

What if the stock market keeps rising? That would be fine, and we would occasionally rebalance (sell) some of your stock funds, to maintain your desired stock allocation, per the written Investment Policy Statement we agreed upon.

What if something unexpected happens? That would be normal, as we realize that we cannot predict the future.

What if tax reform gets enacted this year? Many think this would be good, particularly if there is corporate tax reform. In the very long run, growth in future expected corporate earnings drives stock market returns. However, we cannot predict what the impact of this short term event will be to your portfolio. As we cannot accurately predict the future and neither can anyone else, we do not base our investment recommendations on market timing.

What if no tax reform legislation gets enacted this year? As we cannot accurately predict the future and neither can anyone else, we do not base our investment recommendations on market timing or predictions.

What if you have a financial question? You should call us and we can discuss it.

What if you find these blog posts beneficial? Then feel free to share them with others….like some of your friends or relatives.

 

This week’s Takeaway: The world and financial markets are always uncertain. There will always be “what ifs?” We just don’t know what they are and when they will occur. Our investment philosophy and how we plan on your behalf deals with uncertainty so that you can have a positive investment experience, which is focused on meeting your financial goals.

Estate Planning: What you should be considering now

Estate planning means much more than trying to avoid a possible federal estate tax.

True estate planning means you have properly put in place a set of documents (a plan) that says how and to whom your assets will go when you die, as well as how they will be managed if you become incapacitated.

The current Republican legislative proposal calls for the elimination of the Federal Estate Tax. It is critical to note that if the Federal estate tax is repealed, it will most likely only be temporary, for up to 10 years. Due to the rules of the Senate, it is unlikely that the tax reform legislation will be permanent and many of the provisions, if passed, would expire in 10 years.

Thus, even if the estate tax is repealed, estate tax laws have changed frequently over past decades and an estate tax could be enacted again in the future. Your estate plan documents should be flexible and represent your desires, whether you are subject to an estate tax or not.

As good estate planning encompasses many more issues than estate tax reduction or avoidance, you should review or work on your estate plan even if the estate tax is repealed.

We view our roles as financial advisors very broadly. We are much more than just investment advisors. We have extensive experience in helping clients clarify their goals, simplifying the estate planning process and providing creative solutions. If dealing with these issues is difficult or you would like our assistance, please talk to us.

There are some of the topics you should consider in reviewing or drafting your estate plan:

  • Do you have the proper supporting documents in place and are they current?
    • These should include Powers of Attorney, Health Care Powers of Attorney and Advanced Medical Directives. If you are married, each spouse needs their own documents.
    • You should have a Revocable Trust in place, to avoid probate. Then it is important that you have funded the Revocable Trust, which means that your various assets are titled in the Trust name, not in your personal name.
  • Who are your Trustees or Executors when you die or if you become incapacitated?
    • Are they age appropriate and younger than you, to be able to effectively manage your affairs for many years in the future?
    • Have you named successor Trustees, beyond the initial Trustee(s) or Executor(s)? We do not recommend naming banks in these roles, except for special situations.
    • We have seen a number of times when the people named for these positions made sense when the documents were originally drafted, but later need to be changed. Check these.
  • Are you comfortable with when and how assets may be available to the next generations, depending on their ages and level of maturity?
    • Particularly if you have significant assets, think through the numbers. We can walk through this exercise with you.
    • For example, if you have $6 million and after you (and your spouse) die, and you have 3 children, are they able to handle receiving $2 million each?
      • Should the children get all of the money in one lump sum, even if they are adults? We recommend spreading the distributions out over a period of time, for almost all situations, unless the beneficiaries already have shown good responsibility handling significant sums of money.
        • Your documents could specify distributions in multiple stages over a number of years. If they are older than the last age specified when they would actually begin to receive the funds, a second provision could state: at the time of your death and then 2 and 5 years later, as an override.
    • We strongly recommend that assets going to the next generation should be given in the form of trusts, not to the beneficiaries outright, especially if the beneficiaries could be receiving $500,000 or more. This is vital in case of a future divorce by your children or beneficiaries.
  • If you desire to leave assets to a charity, and you have significant assets, we generally recommend making these charitable bequests from an IRA or retirement plan. This will be a huge tax savings to your heirs. These need to be done through the beneficiary designation form for that account, not through an estate plan document an attorney drafts.
  • As Alzheimer’s and dementia are becoming more common issues, we recommend that you review the provisions for how your financial matters would be handled if you were unable to manage your own affairs.
    • Traditionally, most estate plan discussions and documents focus on what happens after you or your spouse die. With Alzheimer’s, you may be alive for many years, but require the assistance of others to manage your finances. Thus, durable power of attorney designations and similar documents are vital.
    • Review your designations for this responsibility. Unlike estate Trustees who may have a only short period of responsibility, a successor during your lifetime may provide services and deal with issues for years or decades. 
    • If you are diagnosed with Alzheimer’s, Dementia or Parkinson’s, it is wise to meet with an Attorney who specializes or is knowledgeable about these issues in the early stages to make sure all your documents are in order as your significant other or guardian will be responsible for your care, finances and legal documents.
  • Do you want to add specific provisions for grandchildren in your estate documents? This has been a very meaningful topic we have discussed and seen implemented with a number of clients. They are providing these gifts, in addition to leaving funds to their children.
  • Is your life insurance adequate? Do you have older policies which should be reviewed? Do you have significant cash value or do your policies mature before age 100?
  • If your children are minors, have you designated guardians for them? If this was done a number of years ago, do you still agree on the guardians?
  • If a relative died recently, you should check to see if any of your estate plan documents need to be changed as a result. Your beneficiary designations? Your trustees or successors? Guardians?
  • If something happened to you, do your immediate family members know the passwords to your financial accounts, such as your credit cards, banks and other institutions? See my blog post on this matter, Emergency Planning.

 

This week’s takeaway: Estate planning has traditionally focused on avoiding estate taxes. With recent tax changes and others proposed, you should review and focus your estate planning and related documents on practical matters. Time spent on these issues could be very beneficial to your and your family members. We are here to help you.