Giving Thanks

As we will celebrate Thanksgiving Day next week, we hope you appreciate the good fortune that so many of us have, simply by being born and able to live in the US.

Warren Buffett has often cited what he calls “winning the ovarian lottery,” which he feels Americans win the day they are born in the US. In lengthier speeches on the same topic, he cites the many aspects of your life which are determined at birth: the political and economic system you are born into, your health, gender, skin color and your level of intelligence.

While our country is certainly not perfect, we are thankful for its many virtues and the opportunities it has provided to so many of us.


We are truly thankful and positive, and hope you are as well.


We are thankful for our clients, who have placed their trust in our firm. We do not take your loyalty for granted.

We are very thankful for the referrals that our clients and friends have made to people they care about, so we can assist them and better their lives.

We are thankful for the clients who have requested our advice on matters in addition to  investing and financial planning, such as helping them with life transitions, estate planning, real estate transactions and the sale of businesses.

We are thankful that our clients understand the importance of focusing on their long-term goals, and not on short-term market swings, as this will provide them better long-term investment results.

We are thankful for our business partners and relationships, which help us to be successful and operate our business efficiently.

We wish all of you a very Happy Thanksgiving, and hope you are able to share it with those who are most important to you.


Note: As next week is Thanksgiving, there will not be a weekly blog post email next Friday. The next email will be December 1st.

This time it’s different….or not?

Is this long term bull market different from those of the past? No.

Are things really different this time around? No.

This phrase comes into play when markets go through periods of major declines and gains. Think of the losses during 2008-09 or the huge tech increases in the late 1990s.

History and academic research teaches us that “it’s not different this time,” even if you may feel that it is.

As in the past, patient and disciplined investors will do best by adhering to their investment plan and a well thought out strategy.

Those who actively trade or try to time the market will most likely do worse than those who focus on the long term.

Investors who focus on low costs and diversification, such as asset class funds like we recommend, will have a greater chance of success. Data shows that lower investment costs are correlated with better performance.

Will this market end up in a bubble? It is possible. But no one can accurately predict exactly when this may occur. Even if they could, would they also be able to predict the bottom to get back in?

A bubble or temporary peak is somewhat normal for stock market activity. So are declines and corrections. The highs are generally too high and the lows are too low. Over time, the world’s stock markets continue to reach new highs and investors reap the rewards, even if they are interrupted by sharp, temporary declines along the way.

Investing may seem easy today, when markets are increasing. When the next major decline occurs, and major declines will occur again and again in the future, remember these words. It will not be different then. Each decline may seem scary and unexpected. How and when the market will recover may seem unclear. Negativity and fear will be everywhere. Most people will think it is actually different this time. But you will know it is not truly different. Just the specific circumstances will be different. That is when this historical perspective will come to your aid. We will provide you with rationality during the uncertainty. We will remind you that optimism is the only realism.

The stock market today has some individual stocks which appear to be quite overvalued. This has been the case for some individual stocks for many years. But individual stocks are not a game we feel is worthwhile to play with your serious money. Investors who buy these hot large cap growth stocks may be successful, but they also are at much greater risk when the next downturn occurs or when one of these companies incurs an earnings miss.

At the same time, there are many asset classes and individual stocks which are more reasonably valued. As no one can accurately predict in advance when an individual stock or asset class will rise or fall, we will continue to recommend that our clients remain invested in a globally diversified portfolio using asset class mutual funds, according to their personal Investment Policy Statement.

This time is not different. There will be a correction at some point. But we have not advised our clients to wait on the sidelines for that to occur. In the words of legendary mutual fund manager Peter Lynch, “far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

Our goal is to provide you with advice which will enable you to secure a real-life outcome superior to that achieved by the vast preponderance of your peers. This is different.

This week’s takeaway: Stock markets increase over time. Corrections and significant declines will occur, but they will be temporary and the markets will recover. The cause and timing of these corrections cannot be predicted. During these times, when the markets are down and many others say “this time it’s different,” it will not really be different.

The financial markets today and going forward

The stock markets in the US and the world continue to be very rewarding for most investors.

If you are broadly diversified, you should be benefiting from solids gains over the past years.

We see the economy as continuing to be strong and the majority of companies continue to report good revenue and earnings growth. Companies which are not growing or are being impacted by innovation and strong competition (many retailers, grocery store chains and energy companies, for example) have seen stock market returns far below the general market averages.

Stock market returns are correlated to current and future earnings expectations of companies. Over time, greater earnings result in higher stock prices. For evidence of this, take a look at GE and IBM over the past decade and Under Armour, which declined over 20% in one day this week after reduced sales expectations.

In the short term, stock market returns can be impacted by politics, but long term returns are not driven by politics. Our best advice is to ignore day to day politics and focus on the long term growth of the great companies of the world.

One of our core principles, grounded in academic financial research, are the following relationships: small stocks outperform large stocks, value stocks outperform growth stocks, International stocks outperform US stocks and Emerging Market stocks outperform US and International stocks. While our recommended portfolios have exposure to many asset classes, we recommend exposure to small, value, International and Emerging Market stocks, as they have greater long-term returns.

While these relationships do not hold true every year, we believe they are valid and will be rewarding for disciplined investors who are patient over the long term.

While valuations of certain individual stocks and some US indices seem quite high, the returns of some major indices have been driven by the performance of a small number of companies. The Dow Jones Industrial Average (DJIA) is comprised of 30 stocks. The WSJ reported yesterday that Boeing alone accounts for most of the DJIA’s gains for this year. For October, 3M, Apple, UnitedHealth, Caterpillar and McDonald’s accounted for over half of the DJIA’s gains. Our globally diversified stock portfolios consist of thousands of stocks, so your returns are broad based and not due to just a handful of companies. This should be reassuring to you.

As markets have risen, many commentators have stated that valuations are excessive and others ask if it is time to get out of the market. Valuations are much more reasonable for the asset classes we focus on, particularly considering that global interest rates are still historically low. The asset classes we recommend greater exposure to, such as small value companies, International and Emerging Markets, are cheaper than many major US stock indices (such as DJIA, S & P 500 and NASDAQ) based on various valuation metrics. Thus, given that these asset classes have provided solid returns and are still cheaper than many US stock indices, we are confident in our portfolio positions.

This does not mean that a market decline or correction cannot occur in the near term. On the contrary, markets are long overdue for a 10% or greater decline, on their longer term path higher. However, we would not recommend changing your stock allocation today just because of the gains of the past years.  Those who have not been invested in the stock market, who are concerned or have been waiting for a pullback for the last year or two, are far behind those who have stayed the course and remained invested according to their written investment plan.

Our investment strategy of monitoring your portfolio to maintain your appropriate allocation to stocks provides you the benefit of discipline and the reward of “selling high.” We are disciplined about rebalancing throughout the year, not just at year end. We do not sell an entire asset class, such as completely getting out of emerging markets because it has outperformed this year. We may take some profits, but still leave exposure to each asset class.

We are positive about the announcement of the new Federal Reserve Chairman, Jerome Powell.  His appointment requires confirmation by the Senate.  He is expected to continue along the same path as Chair Janet Yellen, who has managed the transition of the Fed well during her 4 year term, which ends February 5, 2018. The US stock market had strong gains during her 4 years as Fed Chair. We expect Powell to lead in the same manner in the future, with gradually rising interest rates over the next few years, with some commentators suggesting he may be less restrictive from a regulatory standpoint.

The world is constantly changing. No one can predict the future. We could not have predicted the success of Apple, Amazon or Facebook’s stocks 10-15 years ago. But we also don’t know how these stocks will perform over the next 10-15 years. Past performance does not guarantee future returns.

Similarly, we could not have predicted 10 years ago that Bed Bath & Beyond would be worth much less today, Merck would be worth about the same and Exxon Mobil would be worth less than it was in 2007. These are just a few examples of why we believe in the broad diversification of using asset class mutual funds, which have dramatically increased in value over the past 10 years.

This week’s takeaway:

The asset class funds which we recommend are very broadly diversified and hold thousands of stocks. Their returns have been solid and not concentrated in a few stocks. There are some major indices whose increases are due to a small number of stocks. Also, the valuations of the asset classes which we overweight are more reasonably valued today than major US indices. This should be reassuring for our clients.

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. 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. These have been excellent and rewarding decisions.

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, which has been quite successful in helping our clients reach and exceed their financial goals. BAM is also a key factor in our firm’s delivering of 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 long term. 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.

Tax reform update and 2018 Social Security Projections

Tax reform update: On Wednesday, Republican legislators released a broad framework of individual and corporate tax changes. The proposal is far from enactment and many details will need to be negotiated.  It is not yet in the form of a bill which is ready to be voted upon, as the proposal is a 9 page PDF.  We will provide more detailed commentary and analysis as it progresses further.

The proposal includes eliminating most itemized deductions except for mortgage interest and charitable contributions and eliminates the Alternative Minimum Tax and Estate tax.  The framework proposes significant corporate tax reductions.


2018 Social Security Projections: Social Security recipients are projected to receive at least a 1.8% increase in 2018 benefits, but this could be partially or fully offset by higher Medicare premiums for most recipients. So, there may be no net increase in monthly Social Security payments for most recipients in 2018.

The Social Security Administration will officially announce the changes for 2018 in October, based on inflation figures through September 30th.

The increase in gross benefits would be largest annual COLA change (cost of living allowance) since 2012, as inflation has been very low over the past 5 years.

However, for many high income individuals and couples, they may have no change or even face net reductions in their monthly deposits, due to higher Medicare premium tiers which take effect in 2018.

For 70% of Medicare enrollees who are Social Security recipients, any Medicare insurance premium increase cannot exceed the increase in gross Social Security benefits. Thus, their net benefits may remain the same in 2018.

High income seniors, defined as singles with income over $85,000 and couples with income above $170,000, are not protected by this “hold harmless” provision regarding Medicare insurance premiums exceeding Social Security benefit changes.

There is not any planning which can be done to avoid the impact of the Medicare premium increase, as it is based on past income tax returns.   The Medicare premiums for 2018 are based on your 2016 tax return information.

If you have not yet begun to collect Social Security and are nearing the age which you can begin to collect Social Security (62-70), you may want to contact us to discuss this important decision.


This week’s Takeaway: While net Social Security deposits may stay the same or decrease in 2018, these are still vital benefits for nearly all Americans. Annual payments can be $20-40,000, which is the equivalent of withdrawing 4% per year from an account value of $500,000-$1,000,000.



Source: Investment News, Mary Beth Franklin, September 25, 2017

Diversification for investment success

When we structure and monitor your investments, we diversify your portfolio in many ways. Diversification is a core principle of our firm.

It is clear that to grow your investments and outpace inflation, a portion of your portfolio needs to be invested in stocks.

However, we will never invest so much in any one company stock or bond that your financial future would be significantly impacted if a single company were to blow up or decline dramatically.

For your stock portfolio, we invest in mutual funds which are highly diversified. They are each invested in at least hundreds of companies, across a broad range of industries. For international and emerging market funds, there are maximum levels of exposure to countries and regions, as well as at the company and industry sector level.

We also broadly diversify your fixed income securities across numerous companies and industries. We would not have you own more than a few percentage points of your portfolio in any one company’s bonds, at most.

These principles are designed to use diversification to reduce your risk by avoiding over-concentration in any one region, idea, concept or stock. We cannot control the future, but we can use diversification as a method to control your risk.

Just owning a group of mutual funds does not ensure adequate diversification. Many times we have seen prospects or others who own many mutual funds, but several stocks are the major holdings throughout these funds. These people had numerous funds, but were not properly diversified. The set of mutual funds we recommend prevents this type of duplication. For example, you will not find Apple held in 4-6 of  the 12 funds that we may recommend for you. If you are not a client, we can analyze your accounts to determine how well you are diversified, by company, industry sector and geography.

The world is constantly changing. Technology and innovation cause companies to succeed and others to fail. It is very difficult to consistently predict which companies will do best in the future, especially over the long term. By being broadly diversified and using asset class funds, we enable our clients to participate in the growth of the US and worldwide economy, through owning companies of all sizes and industries.

Many investors focus their holdings on high dividend paying stocks. They feel they are diversified and think they are doing well, as they may own many stocks in various industries. However, we have seen numerous portfolios where these portfolios are lagging stock market benchmarks by huge margins over the long term on a total return basis. They are diversified, but by focusing on what we refer to as “legacy stocks” of the past decades, they are not doing as well as they could be from companies in various industries. Being diversified using our investment philosophy mitigates this dramatic underperformance of owning primarily legacy or high dividend paying stocks.

Diversification cannot prevent losses. Diversification cannot avoid broad declines when all global stock markets go down at the same time.

Diversification can also limit your upside. For example, by being broadly diversified, you would not have benefited as much if you had invested a large percentage of your portfolio in a few stocks, such as Facebook or Amazon which have a had huge long term gains. The tradeoff for diversification is less overall risk and less volatility. We think that is worthwhile in the long-term, given that you would own some of each of these stocks within the mutual funds we recommend.

Given that the future is always uncertain, we diversify your portfolio in an effort to compensate for this uncertainty.

Broad diversification enables you to avoid preventable investment issues, such as being highly concentrated in a single stock or industry, and then to see this stock or sector vastly underperform global benchmarks. Examples of this would be concentrated investments in energy in the past few years or technology stocks in the early 2000s.

We use diversification as another way to provide you with a better long-term investment experience. Diversification is a way we can strive to reduce your risk, as much as possible, through good planning.

This week’s takeaway: The more you own of any one stock or one sector, such as energy, health care or a few technology stocks, the greater the unnecessary risk you are taking. We recommend broad diversification for a greater chance of long-term investment success.

Equifax data breach and how it will affect you

Last week credit-reporting agency, Equifax, disclosed a data breach that has affected approximately 143 million Americans. You should assume that you have been affected. Equifax disclosed last Thursday (September 7) that personal client data consisting of Social Security numbers, dates of birth, names, addresses, driver’s licenses and credit card numbers were exposed through the breach.

Equifax first discovered this breach back in July of 2017. Equifax stated they immediately took action to stop the intrusion and hired an independent cybersecurity firm to conduct a through review to confirm the extent of the invasion and the information accessed. The company also reported the criminal activity to law enforcement and continues to work with the authorities.

After the breach, Equifax provided a website to verify if you were affected by the breach. Initially many have questioned the accuracy of their website and the data provided. This website also hosts important updates for consumers, FAQs, and how to enroll in the credit-reporting agency’s complimentary identity theft protection and credit file monitoring.

Equifax is offering free identity theft protection and credit file monitoring to all U.S. consumers, even if you are not impacted by the data breach. You may want to do this, but we do not feel this provides you with any real form of identity theft “protection.” It is more like a monitoring program than protection. Per Equifax’s website, “This offering, called TrustedID Premier, includes 3-Bureau credit monitoring of your Equifax, Experian and TransUnion credit reports; copies of your Equifax credit report; the ability to lock and unlock your Equifax credit report; Identity theft insurance; and internet scanning for your Social Security number- all complimentary to U.S. consumer for one year.” The enrollment for this offering must be completed by November 21, 2017.

A first step you can take now is to set up fraud alerts with all three major credit reporting agencies, EquifaxExperian and TransUnion. You will get an alert if someone tries to apply for credit in your name.

Another step you should take now is to put a credit freeze in place at each of the three credit-reporting agencies in an attempt to prevent becoming a victim of identity theft. A credit freeze at each agency prevents someone from establishing new credit in your name. Eve Velasquez of the non-profit Identity Theft Resource Center said on CBS News, “A credit freeze will lock the criminals out of opening financial accounts in your name, but there are other types of identity theft. And that includes medical, criminal and governmental.”

As of last Saturday, tens of thousands of U.S. consumers had initiated credit freezes. Credit freezes are open to anyone and are temporarily or permanently reversible. Equifax is currently not charging a fee to initiate a credit freeze. It is unclear how Experian and TransUnion will handle the fee to initiate and lift the credit freeze. Some states require consumers to pay a fee to lift a freeze. The fee range is about $5 to $10 and varies by state.

A credit freeze does not affect existing credit arrangements like outstanding loans or credit card accounts. Establishing a credit freeze helps to prevent others from opening new credit card and loans in your name. A credit freeze is not recommended if you plan to open up a new credit card or new car loan in the very near future. A credit freeze does not affect your credit score. If you establish a credit freeze, you will be given a personal identification number (PIN) that you would use when you need to temporarily or permanently reverse the credit freeze. It will take approximately three business days to lift a freeze per the Federal Trade Commission when and if you decide to lift the freeze. For more information and a helpful guide to a credit freeze, please see Alia E. Dastagir’s article, Equifax data breach: How to freeze your credit in USA Today.

Please be extra vigilant of the PIN that you are given if you decide to go the credit freeze route. Make sure the PIN Equifax and the other credit-reporting agencies gives you is a randomly generated number. Originally Equifax issued PIN numbers based on the date and time you called to set up your credit freeze, which are not considered secure.

A third step is to check your credit report. You are entitled to one free credit report per year from all three credit-reporting agencies. It is recommended to spread these out over the year, checking in every four months. You can access the credit reports here.

Separate from the credit report issue, we would again remind you to change your passwords to your online financial accounts. It may be a good idea to update and strengthen those passwords and or PIN numbers attached to those accounts. Our firm is a strong advocate of making sure you safely and efficiently manage your passwords. We have written several blog posts regarding this subject matter: 5 Password Security Tipsand How to securely and efficiently Manage Your Passwords.

Even if your name does not register as part of the Equifax data breach, we recommend monitoring your credit reports and updating your password(s) and any PIN numbers associated with your accounts.

As the world is more tech savvy, it definitely puts us on high alert with our personal information and the number of companies who have access to it. If you need further guidance or have questions regarding the data breach, please contact our office.

This week’s takeaway: Everyone should consider that they are affected by the breach and should establish a credit freeze at all three credit-reporting agencies. Please see the article, Equifax data breach: How to freeze your credit by Alia E. Dastagir, USA Today, for all three credit-reporting agencies contact information and how to guide to a credit freeze.


Additional helpful guidance and some of the information we gathered can be found with the links below:

Victim of Equifax data breach speaks out, Anna Werner, CBS News, 09/12/2017

How to defend yourself against identity theft after the Equifax data breach, Adam Shell, USA Today, 09/11/2017

After Equifax Breach, Here’s Your Next Worry: Weak PINs, Ron Lieber, The New York Times, 09/10/2017

Equifax, Bowing to Public Pressure, Drops Credit-Freeze Fees, Ron Lieber, The New York Times, 09/12/2017

4 Things You Should Do About the Equifax Hack, Tim Herrera, The New York Times, 09/10/2017