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 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 you with 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.

As you are reading this, I will hopefully be arriving in Athens, Greece, along with my two sons, to visit my daughter, who is studying abroad this semester. We will be staying in Athens, then going to Florence and Rome, Italy over the next week. 

Note: As next week is Thanksgiving, there will not be a weekly blog post email next Friday. The next email will be November 30th.

Rapid Changes……what they mean

From early October until October 29th, the S&P 500 declined approximately 10%.** Stock markets throughout the world incurred similar and even worse losses. While we recommend holding a globally diversified portfolio of stocks, we are using the S&P 500 for illustrative purposes here.

Since October 29th, stocks have rebounded significantly, recouping 1/2 to 2/3 of their losses, depending on the specific asset class.

These are some of the lessons from the past 6 weeks…..

  • Not reacting to news, commentary and dire stock market predictions is almost always the right course of action. Not reacting is actually a conscious decision.
  • Markets can and do change suddenly. You need to be able handle sudden movements and volatility.
    • While US large stocks were at near all-time highs in early October, and some thought they were “over-valued,” the swiftness of the decline was not clearly predictable.
    • In a similar manner, it was hard to predict the very quick and significant recovery that has occurred since the October 30th bottom.
    • Could you have accurately timed both the recent top and bottom of these moves?  We doubt it.
  • Our disciplined investment approach can be beneficial in the long term and short term. We adhered to our clients’ long term investment policies, and rebalanced accounts as appropriate.
    • For those who added funds during this downturn, we took this opportunity to buy low and rebalance to asset classes that have not been performing well.
  • This discipline of buying more of the poor performing asset classes makes sense, if you think of groups of stocks like items at a store which have gone on sale. They were now cheaper. Stocks after the decline represented greater values than they did when the prices were higher.
    • You buy things when they are on sale at a store, right? Stocks that have had quick declines, and especially if most things in the world have not changed that much, are like a sale at a store. Stocks that have dropped in price would now have greater future expected returns, so they are a better value at the lower price.
  • The most cited reason for the decline was the talk and action of the Federal Reserve to raise short term interest rates. While this may have been a cause, or contributing factor, it is hard for us to believe that institutions or retail investors did not anticipate the recent Fed moves or their projections for future interest rate increases. We think their actions have been well telegraphed and are quite reasonable, given the strong state of the US economy. The Fed funds target is currently 2-2.25%.
    • While we are not making interest rate predictions, we want you to realize that it is very likely the Federal Reserve will raise short term interest rates by .25% in December, and then at least two or three times in 2019, by .25% each time. Thus the Fed funds rate could be in the 2.75%-3.25% range by the end of 2019.
    • The two year US Treasury Note is almost 3% today. The Fed projections imply that the 2 year yield could likely rise to 4-4.25% by the end of 2019.
    • This means that for the fixed income investments of your portfolio, they will generate more income as your current investments mature and are reinvested at higher yields.
  • It is also hard to predict the movement of other assets, like the price of oil. In the past few weeks, the price of oil has declined by 20%, which is considered a bear market (drop of 20% or more). I don’t know of any financial institution that was predicting this type of decline. Most financial forecasters and bets in oil futures were predicting oil to go higher this fall, and certainly not far lower, based on Wall Street Journal articles over the past few days.
    • This decline in oil is good for the US economy for many reasons. It reduces inflationary effects, which may mitigate the cost of interest rate increases to borrowers. It enables consumers to spend more. It reduces material costs.
  • Many analysts cite the uncertainty preceding the midterm elections as contributing to the October decline. Clearly, removing uncertainty does help investor psychology. However, if uncertainty was part of the cause for the decline, why did stocks increase in the days before the November 6th election?
    • This re-emphasizes our long standing recommendation to avoid most political news when making investment decisions. While it may seem logical to want to factor politics into your investment strategy, it is not practical and often times will lead to poor decisions.
    • In our opinion, stocks are unpredictable in the short term. So don’t try to make predictions and take short term actions.
      • In the long-term, stocks follow corporate earnings and successful companies adapt and overcome political and other challenges.

The bottom line is that in the short term, stocks are volatile. That is why we develop your asset allocation to be appropriate for your goals and needs, as well as your ability to handle the short term risks and volatility of the financial markets.

We want you to be secure, so you have adequate funds to endure market downturns and be able to sleep well at night, regardless of how the stock market is performing.


**The Standard & Poor’s Composite 500 Index consists of 500 of the largest companies based in the U.S. The companies in the Index change frequently over time, as companies grow, fail, merge and get acquired.

How to be more secure and help your favorite charity

We want to donate to your favorite charity.

We want you to be more secure, financially.

And, we want you to be more secure on the Internet and how you use your passwords.

So just as the beginning and end of daylight savings time has become known as the time to change the batteries in your smoke alarms, we want you to start a new tradition. Daylight savings time ends this weekend, so set your clocks back an hour before you go to bed Saturday night. And change your smoke alarm batteries!

We strongly recommend that you use a password manager program, which should work in a coordinated manner on all of your devices, such as your cell phone, iPad or other computers.

I have used 1Password for many years and I highly recommend it. My son encouraged to begin using 1Password years ago and I cannot imagine living without it. It saves me time. I don’t have to re-type my passwords when I log into various websites. The program auto fills them for me. I have lots of very different, complex passwords and I don’t have to remember any of them. I don’t have my passwords written on a piece of paper in my desk or “hidden” in a notebook.

You should use 1Password or another program, such as LastPass and Dashlane. While the best programs are not free, the cost is relatively nominal (most are between $20-40). We think it makes sense for these applications to charge a fee, and even to have an annual charge, as they are keeping your data secure and they should be constantly improving their services, as well as keeping up with technology changes. For further information on various password manager programs, please see this article:  The best password managers of 2018. 

You should know that everyone in our firm now uses 1Password within our business, to store various passwords we need to maintain. That’s how important computer and password security is to us.

If you are not yet regularly using such a password manager program, we want you to start. If you are a client of WWM, and start using a password manager program by November 15th, we will donate $25 to your favorite charity.

That’s all you need to do is start using a password program and email Michelle Graham of our firm, Let Michelle know that you have started to use a password management program and tell us the name and address of your charity. We will then make a $25 donation in your honor.

We will all benefit. You will be more secure, you will make your life easier and we will be helping a number of charities, we hope!

And if you are already using such a password program, we want to encourage you to start a new tradition. Twice a year, when daylight savings time begins and ends, we encourage you to change 10-15 of the passwords you use the most or are financially important. And if you have any frequently repeating passwords, those should be changed. You should not repeat passwords.

If you are a client of WWM, and you change 10-15 of your passwords by November 15th, we will donate $25 to your favorite charity (if you already are using a password manager program).

After you make your 10-15 password changes, email Michelle Graham, Let Michelle know that you have done this, and the name and address of your selected charity. We will then make a $25 donation in your honor.

We care about you.

We care about the charities that are important to you.

And we care about your security on the Internet.

The next step is up to you.

We hope to hear from many of you in the next few weeks.

Will you act?

Reflections on the Week

Risk and return.


Climbing Mt. Everest.

How to be better investment advisors.

These were some of the topics of the 2018 BAM National Conference which I attended, along with Michelle Graham of our firm, over the past few days.

We heard from Alison Levine, who in 2002 was the captain of the first American Women’s Mt. Everest Expedition.  Her presentation was filled with many leadership and life lessons, which can also be applied to investing.

In building her team, Levine said the members’ techniques and ability were important, but willpower was the most important factor. To be a successful long-term investor, you will need to have willpower to endure down markets (such as we are experiencing right now), willpower to ignore the constant noise and financial predictions and willpower to stick with your financial plan (investments), even when they temporarily underperform some other stocks or asset classes.

Levine stressed the importance of confidence. She had to know that each of her individual climbers were confident of their ability to have a truly confident team. As your advisors, we are confident about our consistent investment philosophy. As a client, we want you to be confident in our investment strategy and philosophy, so you can adhere to it for years and decades.

To make this attempt to climb Everest, the American Women’s Mt. Everest Expedition required extensive planning, training and financial support. This was not a one person effort. The Women’s trip was sponsored by the Ford Expedition and not the Chevrolet Avalanche (get it?) …as both wanted to sponsor the venture.

We learned that before an Everest climber can attempt to reach the ultimate peak, they spend two months having to go up and down the mountain. (See the picture) They go from the base camp up to base camp 1, then back down to the base camp. Then up to base camp 2 and back down to the base camp. Then up and down to base camps 3 and then 4….before they are finally able to climb all the way and try to get to the peak. They are forced to endure this up and down process so their bodies can get safely acclimated to the thin mountainous air.

The climbers had to go backwards many times, so they could eventually go forward. Even when going backwards, they were making progress towards their goal. As in investing, sometimes the markets force you to go backwards (when the markets decline), before you can go forward (when the markets go higher, and then eventually reach new highs).

Various speakers discussed how risk and return are related, which of course we know.

Levine’s 2002 attempt did not make it all the way to the final summit. She was 28,704 feet above sea level, but due to storms that quickly developed, they were unable to trek the final 331 feet up to the peak. Did they fail? No! They had to make smart decisions. It was better not to take extra risk, in order to return …and live. That is the ultimate risk and return!

She returned to Mt. Everest in 2010 and finally made it all the way to the summit. She said she could not have done it without an extensive support team and the crucial experience she gained from her 2002 venture. We are part of your support and advice team. We have extensive experience, rely on market and academic data, and behind us, we have extensive resources that we can rely on, as needed.

We agree that risk and return are related. We discuss this with you, as we develop and evaluate your portfolio over time. One speaker expressed that due to US S&P 500 valuations as of September, 2018, the future expected returns for this asset class are quite low going forward, well below the historic average of 8-10% per year. He may be right, but there is no way to know. None of us has a clear crystal ball about the future. However, we disagree with his recommendation to invest in alternative investments which we find hard to understand, use leverage and make bets by shorting certain stocks (betting they are over priced and will go down). Some speakers advocated adding alternative investments to try to reduce the overall risk of a portfolio or to increase the expected returns. As of now, we are not in agreement that the risk of these alternative investments are worth the potential return. We are open to new concepts and ideas, but we must be confident in them before we invest our money and recommend them to you.

We also heard from another speaker, who spoke from the view of an investor.** He shared how years ago, it was difficult for him to deal with uncertainty, noise and the constant barrage of media predictions and warnings. This was before he began using his current advisory firm (not WWM) and investment philosophy, which is likely similar to ours.

He talked about how important it is for us as advisors to be good listeners. He stressed values that are similar to ours, such as “doing the right thing” and “doing it the right way.”  He discussed the importance of treating each client as an individual and understanding your personal emotions and feelings about money, as well as sharing our personal money stories. I plan to write about these topics in future blog posts and we will discuss them in client meetings.

He said that by working with his advisor, he became more comfortable with the uncertainty of the financial world. He began to tune out the noises. He worked with his advisor to make better financial choices. He realized that he can only control what he can control. He now knows that as a long-term investor, the investments and decisions he makes today will compound over time for great future benefits. He doesn’t know exactly how this will work out, but is confident that over the long term, he feels this is the correct philosophy to have.

We strive to provide the type of guidance and advice that the speaker described, so that our clients can also feel this way.

The speaker feels transformed by the relationship he has with his financial advisor. He refers to himself as a transformed investor. As a result of his new mindset, he is much more willing to refer his friends to his advisory firm, so his friends can be helped by his advisor and feel the way he does.

If you are a client, we hope that you feel this way about our firm, so when the situation arises, you can help your friends and relatives by referring them to us.

If you are not a current client, but want to have this type of investor experience and relationship, let’s talk.


**The speaker is not a client of our firm or BAM Advisor Services (our back office firm), so this is not intended as any form of client testimonial.


2019 Social Security Benefit and Payroll Tax Increases

Social Security recipients will be receiving a 2.8% increase in 2019 benefits. Unlike in 2018, this benefit increase should not be offset by higher Medicare health premiums in 2019, so these should be higher net monthly benefits.

The increase in gross benefits would be the largest annual COLA change (cost of living allowance) since 2012, as inflation has been very low over the past years. Recent changes have been: 2018-2%, 2017-.3% and 2016-no increase.

The earnings limit for those who claim Social Security benefits before their full retirement age will increase from $17,040 to $17,640 in 2019. If this applies to you, you lose $1 benefit for every $2 earned in wages or earned income over $17,640.

In 2019, the maximum wage base subject to Social Security and Medicare taxes will increase $4,500, from $128,400 to $132,900, a 3.5% increase. This will cost employees and employers each $344.25 in 2019. Additionally, all earnings, even above the $132,900 Social Security maximum, are subject to a 1.45% Medicare tax. Plus, individuals with earned income above $200,000 and married filers with earned income above $250,000 pay an additional .9% in Medicare taxes.


This week’s Takeaway: Social Security is still vital 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: “Social Security to get 2.7% COLA,” Investment News, Mary Beth Franklin, October 15, 2018.

Market commentary, October 2018

US and global stock markets market declined on Wednesday. Major US indices dropped by more than 3% and International markets by a bit less, depending on the specific asset class.  They are down again mid-day Thursday, as I complete this.

Whenever there are sudden or steep declines that appear out of the ordinary, investors and analysts try to analyze and determine the cause and effects.

In the context of longer term stock market activity, which generally has been positive for a number of years, this decrease should not be overly worrisome.

The drop may be attributed to a number of factors, which work in a circuitous cycle. Corporate earnings and the economy have been strong. Unemployment is down. It is hard to find good job candidates. Interest rates since 2008 have been historically low. Inflation has been moderate at around 2%.

The Federal Reserve has raised short term rates, which we feel is quite appropriate, in response to the strong economy. The increase in interest rates will benefit many of our clients, as the returns on your fixed income investments will be rising. However, higher short term rates potentially slow the economy. Higher interest rates make it more expensive to borrow to purchase a home, finance a new or used vehicle, or obtain business financing.

While the 10 year US Treasury note yield had risen to over 3.25% early Wednesday, it declined to around 3.15% on Thursday morning. This is the circuitous impact and how various financial markets adjust and self-correct. Concerns about rising interest rates caused growth expectations to be reduced, which then caused the decline in stock prices and in the 10 year interest rate, as well as a drop in the price of oil, due to reduced demand expectations. All in one day, or in a few hours.

We don’t feel anything has significantly changed this week, from the last few months, regarding the economy. Corporate earnings are the key driver for the stock market in the long term. If current earnings and future earnings expectations are good, in general, that drives stock prices higher.

Corporate earnings for the third calendar quarter of 2018 are beginning to be released this week. Thursday morning Delta and Walgreens, for example, announced solid earnings and good future guidance. More results will be released Friday and over the next few weeks. We think these earnings announcements will strongly influence the market’s near term direction.

There are certainly still concerns about trade issues with China. The US budget deficit continues to grow and that cost will be exacerbated by the increase in interest rates, as the US Treasury will continue to need to borrow more money. Tax reform has increased corporate earnings but the impact has yet to appear in US Treasury receipts.

Warren Buffet frequently cites his mentor, Benjamin Graham, for stating that “in the short run, the (stock) market is a voting machine but in the long run, it is a weighing machine.” We agree with this quote.

In the short term, the stock market can be volatile and unpredictable. However, investors who are focused on the long-term, who remain disciplined, patient and diversified, have been amply rewarded.

Nothing has changed our view and future long-term perspective.

As always, if you have questions about market activity or it’s impact on you, please contact our firm. That is what we are here for.

Let’s Talk

A Tribute to a Special Person

Art Sweet, who was one of the nicest people I have had the privilege of knowing and working with, died last week at the age of 93. We worked together as partners at a prior CPA firm for 18 years, from 1990 until 2008. 

Art had merged his two person CPA and bookkeeping practice into this other CPA firm a number of years before I joined that firm in 1990. Originally, Art intended to gradually transition his clients and retire a few years later. Art exceeded the firm’s “mandatory” retirement age of 65 or 70 by quite a bit, as he continued working until last December….finally retiring at age 93.

I really mean it when I say I had the privilege of working with Art. At a funeral or when someone dies, you sometimes hear people say that everyone liked him or her, or they never heard a bad word about that person. Art Sweet was truly one of these people. He was kind. He was liked by everyone he came in contact with. Although I’m sure he had his private moments, I cannot remember him ever getting angry or raising his voice at anyone.

Art and his wife Gladys, when they were both younger and healthy, were world travelers. They loved music and dancing, as well as their many friends and family. We would frequently drive to one of his favorite lunch places, the former Georgio’s on Greenfield Road, always splitting a Caesar salad and huge bowl of pasta. We would have great conversations about his travels, his last trip or the one he was planning, as well as all types of cultural activities, such as a concert he attended, a movie he had seen or a book he was reading. I felt like I was living vicariously through him. Now, I am able to do some of the things we had talked about at those lunches.

Decades ago, I was in awe of Art for his ability to adapt to all the technology changes he encountered. He started as an accountant and CPA way before personal computers. He did tax returns by hand in pencil. He learned how to use computers, as well as handle the continuous avalanche of tax changes that a CPA faces. It is one thing for someone in their 30s or 40s to learn new technology, but imagine the challenges he faced and overcame to keep current with technology in his 70s, 80s and even in his 90s.

People leave a legacy. Art left me a huge legacy. Many years ago, I read a concept by a consultant, Alan Weiss, that when you look back on your career or firm, you will find that it is very likely that a handful of key people will have had a huge impact on your business.

I am very fortunate that Art had many wonderful clients, as many of Art’s clients transitioned through the years at the CPA firm to become my clients. As I transitioned from a full-time CPA to a financial advisor, many of these clients, and their families, became clients of our financial advisory firm, and are still valued clients and cherished friends.

Art had a love of life and a passion for culture and travel. Art cherished his family, his children, grandchildren and numerous great-grandchildren. For many years, he cared for his wife as she had Alzheimer’s.

Arthur M. Sweet was a special person. The world lost a very kind and gentle person last week.

I am grateful that he was a part of my life.

Fed Continues Interest Rate Increases and Spain (Part 2)

On Wednesday, the Federal Reserve raised short term interest rates by another .25% point. They increased the benchmark rate to a range between 2-2.25%. This is the 8th .25% increase since late 2015 and the third such increase this year.

Based on Fed officials’ projections, they expect to increase rates by another .25% later in 2018, 1% in 2019 and at least one more .25% increase for 2020. This indicates the short term benchmark rate would be slightly higher than 3.25%.

This will mean that for the first time in a decade that short term interest rates will be higher than the rate of inflation, which is currently around 2%.

Fed Chairman Powell said in a news conference that “these rates remain low. This gradual return to normal is helping to sustain this strong economy for the longer-run benefit of all Americans.”

The Fed eliminated the term “accommodative” from the statement they issue after each of their meetings. This and similar terms have been a part of Fed statements since the financial crisis in 2008. Going forward, the Fed will continue to balance their dual obligations to maintain an inflation rate of approximately 2% and the level of unemployment, which is currently low.

The impact on you and your investments

  • Short term interest rates have increased quite significantly over the past year. This will benefit you as the interest income you will be earning on the fixed income portion of your portfolio will gradually increase over the next years, as older investments mature.
    • For example, the 2 year US Treasury Bill yields 2.83% today, whereas it was only 1.48% a year ago.
  • Longer term rates have increased, but to a lesser extent than shorter term rates. Thus, we will continue to invest fixed income portfolios over various years, but in shorter maturities.
    • The 10 year US Treasury Note increased from 2.31% a year ago to just over 3% today.
  • You should make sure that you do not have excess cash in bank accounts that are still earning hardly anything, as even interest rates on very short term investments are beneficial.
  • We remain positive about the economy, as well as both US and global stock markets. While increases in short term interest rates may slow down certain aspects of the economy, the Fed appears to be working towards managing the economy so that it does not overheat and cause inflation to be much greater than 2%.


Felicia and I completed our spectacular trip to Spain on Tuesday.  We visited Barcelona, San Sebastián, Bilbao and Madrid.


 In Madrid, we visited the world’s oldest documented restaurant, Botin, established in 1725.
Our tour guide took us to the central point of Spain, near the middle of Madrid.  It is traditional to place your feet on the marker, to safely return for a future visit.
 We enjoyed great food throughout our trip.  One highlight was very fresh and great tasting produce, meat and seafood.
We are very fortunate to have taken this trip and look forward to more travels in the future!

Discipline and Spain travelogue

My wife and I are in the midst of enjoying our first trip in Spain, as well as our first trip to Europe.  See pictures below.

On the plane here and between cities, I read a lengthy white paper** by a fund manager whose investing style is causing their firm’s “liquid alternative mutual funds” to be currently underperforming most US and International asset classes. Note….we have not recommended or are invested in these funds.

As part of his discussion (23 pages), a quote stood out to me.

“There are two pains in life: there’s the pain of discipline, and then there’s the pain of regret. You choose which one.”

The quote appears to originate from a power weight lifter, not an investment professional.

As a weight lifter, I assume the athlete is saying the regular pain of his or her disciplined exercise regimen must be endured in order to succeed. If the athlete is not disciplined or does not feel the pain, they will not be successful and thus face performance regret.

This is also true with investing.  To be successful, we must be disciplined.

In regards to our firm’s investment strategy, we intentionally design your portfolio to be quite different than the major US benchmark, the S & P 500, which is comprised of 500 US based companies, which change over time.

We design your portfolio to be different than this benchmark with the expectation that you will have greater expected future returns and also have a smoother, better long term investment experience.

However, in order to accomplish these goals, we as your advisor and you as our clients will have to endure periods of “pain” when our disciplined approach may not perform as well as other benchmarks.

We recommend a portfolio that tilts towards more small and value stocks than the S & P 500, as well as include global diversification to our clients’ portfolios.

We add these components based on strong academic evidence that these premiums exist, over the long term, to add small, value and International stocks to a US large stock portfolio. By doing so, you must be disciplined to reap the greater expected future returns.

While this may be true over the long term, just like the weight lifter, there are times when we feel the pain, as these strategies and components may not perform as well as a non-diversified or US large only portfolio. At times, your portfolio may grow, but not as much as the S&P 500. During other periods, your portfolio may decrease in value while the S & P 500 is increasing.

This is when the pain is felt. This is when we will talk to you about remaining disciplined for the long-term, as we feel strongly that the academic evidence still supports these concepts. We may each feel regret, for the opportunity cost of not following other strategies (going with the herd). However, we know that remaining disciplined may be painful in the short term, it has proven to be rewarding in the past and we expect this to continue in the future.

We cannot know in advance when these strategies or premiums will occur. Many times they are unexpected and quickly rewarding, such as with US small company value stocks in late 2016. Other times, investing globally has been very rewarding after trailing US stocks for many years.

So, remain disciplined. At times it may be challenging. 

In the long run, we expect it to be rewarding.

I’ve also included a few pictures from our trip to Spain.

The first is La Sagrada Familia, an unfinished Roman Catholic Cathedral in Barcelona, Spain, designed by famed architect Antonio Gaudi, who worked on this project from the late 1880s until his death in 1926. After decades of no work on this complex through the 1950s, it expected to be completed in approximately 10 years. It was well worth seeing and will be even more incredible when completed.


The second picture is my wife and I after an evening of pinxtos, which is small portions of food enjoyed at bars or small restaurants in the Basque, or northern part of Spain. We were in San Sebastián and had a guided tour of great pinxtos restaurants. We could not believe the crowds in the streets and bars on a Monday evening in this relatively small town!










**Liquid Alt Ragnarok? by Cliff Asness, 09/07/2018



What do you want to hear?

“When will this bull market end?”

“When will the next recession hit?”

“When will the next stock market crash occur?”

“What happens if…….insert your political/economic/future crisis/concern of the day?”

These are all questions that we get asked as financial advisors.

Unlike car salesmen or time share sellers who tell you what you want to hear, we feel it is our obligation to tell you what you need to hear.

It would be terrific if we knew the exact timing of when the bull market will end, when the next recession will occur and when the next stock market crash will occur, but unfortunately, we don’t have perfect crystal balls readily available!

We can not accurately, successfully and consistently predict the future.

Unlike others who may try to forecast, research and try to predict the answers to questions like these, we prefer to be honest and straight forward.  We will educate you, based on facts.  We will give you guidance and our thoughts.  But we will not pretend to tell you things we do not know and cannot predict.

Before we answer these questions, we want to provide some historical data on possibly why you should be a little less concerned about future financial downturns.

As the chart* below shows, a globally diversified and balanced portfolio of 60% stocks and 40% fixed income bounced back and recovered quite well from selected financial and world events which occurred between 1987- 2011, within the following 1-3-5 years.

Data shows that regardless of whether these events could have been predicted or foreseen, within a number of years, a globally diversified and balanced portfolio in nearly all cases had strong returns in the succeeding 3 years and very strong returns in the following 5 year periods.

Since we know that we cannot predict the future, historical financial evidence like this provides guidance to us as your advisor not to try and time the financial markets. As stock markets go up way more years than they go down, trying to make predictions and getting out of the market would likely do greater damage to your financial future.

This is why we work with you to develop a rational investment policy for your specific situation that allocates your assets between stocks and fixed income, so you can handle the future financial downturns that will inevitably occur. This type of financial planning is far more helpful to you than trying to make predictions and financial moves based on forecasts.

“When will this bull market end?”

We don’t know. But we do know that since World War II, there has generally been a 20% decline in large US company stocks once every 5 years. And then the stock market recovers and reaches new highs.

The key concept is that in the future, there will be more declines. There will also be greater new highs. This is why we recommend viewing your investments over long term periods and why, if you will be needing money from your investment portfolio to live off of in the near term, we would allocate a significant part of your portfolio to fixed income investments.

“When will the next recession hit?”

We don’t know. Economists are terrible at predicting recessions, which are technically defined as two consecutive quarters of declining economic activity, as measured by gross national product. Many times recessions are actually over and the economy has resumed growing before economists can declare that a recession has occurred, based on lagging economic data.

There will be future recessions, but they are not directly correlated with ups and downs in the stock market. Stock markets are more correlated to corporate earnings and future earnings expectations.

“When will the next stock market crash occur?”

We don’t know. And neither do others, reliably and consistently.

As we have a disciplined investment philosophy and we adhere to your personal investment policy (plan), as markets increase, we would be gradually selling stocks and increasing your fixed income base.

Unlike other advisors or investors, we would not allow your stock allocation to grow from a 50% target (for example) to 60% or 70% of your total portfolio. We would be re-balancing back to 50% as your portfolio grew, due to market increases.

Not re-balancing and allowing the stock allocation to grow and grow was a key mistake that investors made in the years before the tech bubble of 2000, and at other times. I witnessed this many times as a CPA in the late 1990s and this was one of the factors that heavily influenced us to start this firm. This was a preventable mistake.

While we can’t predict a future crash, we do have the ability to evaluate how much risk you need to take to reach your financial goals. If you don’t need to take as much near term stock market risk and still have adequate resources, then we would reduce your stock market allocation. Then, when the next crash or significant decline occurs, you will not be impacted as much.

While we don’t have all the answers you may want to hear, we have strategies and knowledge that are helpful for you to hear and follow for a secure financial future.




*In US dollars.
Represents cumulative total returns of a balanced strategy invested on the first day of the following calendar month of the event noted. Balanced Strategy:12% S&P 500 Index,12% Dimensional US Large Cap Value Index, 6% Dow Jones US Select REIT Index, 6% Dimensional International Value Index, 6% Dimensional US Small Cap Index, 6% Dimensional US Small Cap Value Index, 3% Dimensional International Small Cap Index, 3% Dimensional International Small Cap Value Index, 2.4% Dimensional Emerging Markets Small Index, 1.8% Dimensional Emerging Markets Value Index, 1.8% Dimensional Emerging Markets Index, 10% Bloomberg Barclays Treasury Bond Index 1-5 Years, 10% FTSE World Government Bond Index 1-5 Years (hedged), 10% FTSE World Government Bond Index 1-3 Years (hedged), 10% ICE BofAML 1-Year US Treasury Note Index. Assumes monthly rebalancing. For illustrative purposes only. S&P and Dow Jones data copyright 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. ICE BofAML index data copyright 2018 ICE Data Indices, LLC. FTSE fixed income indices © 2018 FTSE Fixed Income LLC. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Dimensional indices use CRSP and Compustat data.

Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. See “Balanced Strategy Disclosure and Index Descriptions” pages in the Appendix for additional information.