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



Questions to Ask Your Financial Advisor – Part 2

Last week, we wrote Part I of a blog post in response to the Wall Street Journal’s Jason Zweig’s column ** encouraging people to ask their financial advisor 19 questions. Today we answer questions 10-19.

We hope you find this Q and A informative and helpful to you.

While these questions focus on very specific issues, the relationship between a client and their financial advisor must be based on trust and many intangible factors. These factors are not part of Zweig’s questions.

As we stated last week, if you are a client of our firm, we hope you find our answers re-assuring and comforting.

If you are not a client of our firm, we encourage you to discuss both sets of questions with your current broker or advisor, and compare their answers to ours. See whose answers makes you the most comfortable and confident that the advisory firm is fully aligned with your financial interests and has a long-term investment philosophy, approach and range of services which best meets your needs.

10. Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance? We provide comprehensive services to our clients, which includes investment management, all other matters mentioned, as well as other topics as clients request them. As CPAs with significant investment and financial experience, we are uniquely qualified to provide guidance, alternatives and ideas on a wide range of financial issues. We work with our clients on these issues, may times to help them deal with hard to address topics. We help them move things forward, take the next step and make decisions. We have extensive experience with complex issues, such as estate planning, generational planning, and charitable giving. These services are part of our advisory fees. We do not sell life insurance or draft estate plans, but provide advice in these areas.

11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? No. We do not get compensated for referring clients to other professionals. We strive to match the needs of our clients with other professionals who would be a good fit for them.

12. What is your investment philosophy? We have utilized the same long-term investment philosophy since our firm was founded in 2003, which is guided by the concept of global diversification through the use of asset class mutual funds, the appropriate allocation between stocks and fixed income and rebalancing. We believe every investor should have a written investment policy statement based on their specific situation, need and ability to take risk.

  • Most brokers and financial consultants do not have an investment philosophy beyond the concept of trying to pick the best stocks or mutual funds. We have an investment philosophy which is clearly defined and proven to be successful over the long term.

Investing for the long-term requires patience and discipline. We work with you to provide these. We accept that uncertainty is an inevitable aspect of investing. We help you by managing your risk and by implementing diversification at many levels.

We have a consistent market philosophy and systematic investment process which provides greater transparency to you. This should increase your confidence that our strategy will deliver its objective and enable you to have a better client experience.

See our answers to 13, 14 and 15 below.

13. Do you believe in technical analysis or market timing? No. We do not believe that market timing or technical analysis (making market predictions based on stock charts and trends) can be consistently successful over a long period of time. To be successful at either of these requires someone to be correct twice, when to sell and when to buy, for each decision they make, repeatedly over a long period of time. We do not believe these provide the best strategy for your financial future.

14. Do you believe you can beat the market? Financial industry performance data shows that actively managed mutual funds and professional money managers cannot consistently outguess and beat their respective benchmarks over the long-term, for all asset classes. For further information, see our blog posts, What Are the Right Investmentsand 10 Things You Should Know. Thus, we use very low cost, asset class mutual funds, which are similar, but not identical to index funds, to provide you with a better chance of outperforming most actively managed mutual funds. The funds we utilize have performed very well, as compared to their respective asset classes, over the long-term. Dimensional Fund Advisor (DFA), the primary stock mutual funds we recommend, “35 year track record of outperforming indexes and peers is a testament to both the validity of the idea and the investment approach.” ***

Rather than attempting to pick individual stocks by forecasting or other methods, we increase expected returns by giving greater weight to small, value and high profitability stocks. Data shows that small company stocks outperform large company stocks in the long-run. Similarly, value outperforms growth and International outperforms the US, over the long-term. Based on this evidence, we allocate more of your portfolio towards the asset classes with the greater expected returns, rather than investing most of your assets in US Large company stocks (the S & P 500), if that is defined as the “market.” See our blog post,A Better Way to Invest in Stocks.

Another way to view our goal: you should be comfortable throughout your life so you can meet your financial needs and goals through the assistance of our portfolio structure and our guidance during the difficult times of investing, when markets go down. In this manner, we believe that we will secure you a real-life outcome which will be superior to that achieved by the vast preponderance of your friends and peers.

15. How often do you trade? In general, we trade infrequently. Once we develop your initial portfolio, we make trades based on significant market movements which require us to rebalance your portfolio, as well as when you have life changes and as you get older. If we have discussions and change your investment allocation, we would make trades. We may also place trades, as needed, when you add or withdraw money from your accounts. Academic evidence shows that less trading correlates to better long term investment performance. For more on rebalancing, see blog post The Benefits of Disciplined Rebalancing.

16. How do you report investment performance? In the quarterly reports which are mailed to you, we provide your net investment return both in dollars and on a percentage basis, after deducting our fees, over various time periods. It is simple and easy to understand. The custodian, usually Fidelity Investments, provides monthly statements, which you can receive by mail or online.

17. Which professional credentials do you have, and what are their requirements?Both principals are CPAs and hold the Personal Financial Specialist (PFS) certification from the AICPA, which is similar to a CFP (Certified Financial Planner) for CPAs. The PFS certificate requires significant hours of work within the financial planning profession, rigorous study, continuing education every year and adherence to high ethical standards. The CPA designation requires similar items, as well as a passing a multiple day exam.

18. After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term? This is a difficult question to answer, as much of it depends on each specific person, as well as many factors which are subject to change. For a globally diversified stock portfolio, we would project a 10% long term return, before inflation and costs. However, there would be significant volatility from year to year, above and below this amount.

Your long-term expected return would be dependent on your allocation between stocks and fixed income (whose return is based on inflation and Federal Reserve policy) and this allocation will change over time, based on your financial goals and needs.

Our investment strategy would minimize the tax effect of your investments more than most other approaches. We utilize tax managed funds (which very few brokers and advisors recommend) and the funds have very low turnover, both which provide you with greater after-tax returns. Inflation currently averages around 2% per year. Our advisory fee would be 1% and the internal expense ratio of the stock portfolio we recommend would be around .30% for a client’s $1 million stock portfolio. Our advisory fee would be less for larger portfolios.

19. Who manages your money? Our investments are managed by our firm, in the same investments as our clients. Again, our financial interests are completely aligned with our clients. See blog post, Does your financial advisor invest as they recommend?


This week’s takeaway: We are confident that our investment strategy and comprehensive services will secure you a real-life outcome which will be superior to that achieved by the vast preponderance of your friends and peers.


** The 19 Questions to Ask Your Financial AdviserWSJ, August 26, 2017  (link maybe blocked by WSJ paywall)

** Source: DFA’s 35 Quotations on a Better Way to Invest, quote 23, 2017


Questions to Ask Your Financial Advisor – Part I

One of the best personal finance journalists in the business, Jason Zweig of the Wall Street Journal, wrote a column** last Saturday stating that “the burden of finding someone who will act in your best interest is on you.

“The obligation of those who give investment advice to serve clients, not themselves, is called fiduciary duty,” Zweig wrote. Our firm always acts in this fiduciary manner.Many brokers and other advisors do not. This makes a real difference, whether you realize it or not.

Zweig’s column provides 19 questions to ask your advisor and recommends listening for the best answers.

We thought it would be informative to you, our clients and others, to provide his exact questions and our answers in this and a future blog post.

If you are a client of our firm, we hope you find our answers re-assuring and comforting.

If you are not a client of our firm, discuss these questions with your current broker or advisor, and compare their answers to ours. See which one makes you the most comfortable and confident that your interest comes first. Always.

  1. Are you always a fiduciary and will you state that in writing? Yes, we have always acted as fiduciaries and will always continue to do so. As both principals of the firm are CPAs, we are required as CPAs to always act in a fiduciary manner. This means that we always act in our clients’ best interest, ahead of our own interest. The Investment Advisory Agreements with our clients will be amended this fall to specifically state that WWM will act as a fiduciary to each client.
  2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? No. Our only source of compensation is from the advisory fee our clients pay. We are not paid commissions by any mutual funds. We do not earn more to recommend one type of investment over another. We are different than brokers who may recommend or sell annuities and certain mutual funds, which the brokers may be paid up front commissions of 5-8% and then ongoing compensation as you hold the product (whether you know it or not).
  3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors? No. Never have and never will. We do not receive any compensation from a vendor for any investment which we may recommend. Many brokers receive these types of incentives.
  4. Will you itemize all your fees and expenses in writing? Absolutely yes. We discuss our advisory fee in initial meetings and it is clearly stated in our Investment Advisory Agreement, which you sign when you become a client.
    • In comparing advisors or different firms, you should also review in writing the cost of the underlying investments. We can clearly provide this to you. We recommend a globally diversified stock portfolio of mutual funds with an internal fund cost of approximately .31% (this may vary slightly based on your specific portfolio). These are among the lowest cost mutual funds in the industry. The average internal cost (expense ratio) was 1.28% for stock mutual funds in 2016.*** We would use individual bonds, which would have no annual expenses or a very low cost bond fund, depending on the size of your portfolio. Other advisors may be much less transparent in this area….and usually much more expensive.
    • In almost 15 years of business, we have never been more expensive in comparing total costs with a prospective client, when all advisory fees and expenses are included.
  5. Are your fees negotiable? We have a standard fee schedule, which begins at 1% for up to the first million of assets which we manage. That fee declines as assets under management increase. We may vary from our fee schedule in certain circumstances, based on the specific situation.
  6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets? No, we do not plan to change the way we charge. We are interested in mutually beneficial long-term client relationships. We want to be very involved with our clients. We want our clients to contact us when they have issues or financial questions to discuss. If we charged by the hour, clients may be hesitant to consult with us as frequently. As stated above, we have found that our fees and the total costs incurred by our clients are very competitive.
  7. Can you tell me about your conflicts of interest, orally and in writing? We strive to be as free from conflicts of interest as possible. As Jason Zweig points out in another column, almost every business has some type of conflict of interest.
    • We do not have the conflicts of interest that many brokers or Financial Consultants may have, such as being compensated more for recommending specific investments or annuities. We advise our clients based on what is in their best interest, not ours.
    • We would have a conflict of interest when advising someone whether they should use money from their investments rather than take a mortgage to purchase a home, for example. We would have a conflict, as we are compensated based on the size of their account. In this situation, we provide the pros and cons, based on the specific situation and recommend what we feel is in that client’s best long-term financial interest.
    • We have frequently told clients to spend money to take trips and gift money to relatives or charities, all of which was in their best interest, but to our financial detriment. We want clients who work with us for the long-term and that means striving to always provide advice which is in their best interest.
  8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients? No.
  9. Do you pay referral fees to generate new clients? No.

This Week’s Takeaway: Our financial interests are completely aligned with your financial interests. Our only form of compensation is the advisory fee paid by our clients. If you make money, we make money. If your account declines, so does our revenue. These statements cannot be made by many brokers and financial consultants at large financial institutions and banks. Ask these questions. And listen carefully to the answers.

Do you notice the change?

This week’s takeaway: This week, I’m adding “This week’s takeaway” at the end of each week’s blog post. It may be a summary of the post or just a concept I want to highlight. Look for it and email me to let me know if you find this helpful. 

This week’s blog post:

Change can happen gradually. You may not even notice very small changes. But over time, small changes accumulate to have a significant impact.

You may or may not really notice as prices go up gradually over time. The cost of your favorite cereal, yogurt, bananas, as well as utilities, health care and other services may go up over months and years.

This price inflation is when the cost of goods and services increase over time. In general, the cost of most items increase. In the short-term, price increases usually do not change your purchasing habits or your standard of living.


However, over the long-term, say decades, year to year price increases (inflation) have a major impact.  If you do not have substantial retirement income or savings, and your income and assets do not rise as costs rise, how will you live the life you want to live?

To give you a better idea of the true, long-term impact of inflation, let’s look at the cost of cereal over many decades. An 18 ounce box of Kellogg’s Corn Flakes increased from 27 cents in 1960 to $4.19 in 2017.**

Here is a summary of the cost of an 18 oz box of Kellogg’s Corn Flakes over the past 50+ years:**


It’s pretty startling. As this chart shows, the dramatic increase in Corn Flakes prices over the decades is really quite significant. You know the cost of groceries have gone up over time, but seeing it like this probably provides you with a different perspective. It sure surprised me.

How does long term price inflation impact your investments?  
It’s pretty startling. As this chart shows, the dramatic increase in Corn Flakes prices over the decades is really quite significant. You know the cost of groceries have gone up over time, but seeing it like this probably provides you with a different perspective. It sure surprised me.

To maintain your standard of living and keep up with inflation, we generally recommend that most clients have an allocation to a diversified portfolio of stocks.  Over time, stocks and their rising dividends exceed the rate of inflation. Fixed income investments do not keep up with the inflationary effect of rising prices, especially on an after-tax basis. The purpose of the fixed income allocation of your portfolio is to provide you with current income and stability, as this part of your investments will not incur the fluctuation of stocks.

Thus, owning stocks, even with their short term temporary ups and downs, gives you the best chance of out-pacing inflation over the long term. The percentage of stocks in your portfolio would be based on your personal situation, your timeframe and what you want to accomplish in your lifetime.

If you are now 60, your life expectancy is hopefully many decades (20-30+ years), so your investment portfolio needs to be able to provide for growth to keep up with, and exceed, the gradual rise in prices over time. This after-tax, real long-term growth has to come from stocks, for which we recommend a globally diversified stock portfolio.

You want safety and financial security. That comes from fixed income. But you need to have growth to outpace inflation and build your wealth (especially for younger clients), which you get from holding stocks for the long-term.

For many people, there is a tightrope balance of what percentage of stocks and fixed income that need to be held at various stages over your lifetime. We help you determine an appropriate allocation of stocks because it is necessary for your long term financial future. And then we help you maintain this stock allocation, especially when stocks go down. As your financial advisor, these are vital aspects of the value we provide to you.

This week’s takeawayOwning a globally diversified portfolio of stocks will outpace inflation over the long-term, if you don’t sell when stocks go down. If you remember that broad based stock declines have always been temporary, you will be a more successful long-term investor.

**Source:  foodtimeline.org, 8/20/2017, for data through 2000.  Data for 2017 based on local store, 08/20/2017.

This time is different…and why

In the late 1990s and early 2000s, it was different. We were full time CPAs, not financial advisors. We worked closely with our tax clients and they often requested that we review their investments and join them in meetings with their brokers.

Now, we are financial advisors, managing investments for individuals and families, helping you meet your financial goals and providing guidance with other financial matters.

There is one former client’s investment experience from my CPA days that I will never forget. This is one of the instrumental events which led to the formation of our financial firm. You benefit from this “experience” and the lessons learned, in the advice you now receive from us.

A past client I will call “Joe” was a successful doctor in the late 1990s who was planning to retire soon. He had accumulated a good amount of money and expected to be comfortable during his retirement years.

His brokers were relatives. Thus, you would think they would have been extra careful with managing his money. In the mid-1990s, he had a stock allocation of approximately 50%. During the late 1990s, he was heavily invested in technology stocks, as many people were in those days. The tech stocks kept rising and he was enjoying the ride.

By 2000, I was getting concerned. Joe had an adequate amount of money to gradually begin retiring. I met with him and his wife a number of times and wrote him letters of caution during 2000 and 2001. The stocks, and the technology stocks in particular, had rapidly increased and the stock allocation in his profit sharing plan grew to beyond 85% in 2000. I recommended that he reduce his stock allocation. Take some profits. Be much more diversified. Please, sell some of the tech stocks.

But Joe did not listen to me. His advisors held onto the stocks. His portfolio got crushed as the S & P 500 and NASDAQ (mostly technology stocks) went down 3 years in a row during 2000 – 2002. As a result, he couldn’t retire when he wanted to. He went from what should have been a very comfortable retirement to needing to work for more years, in an attempt to rebuild his savings.

Watching and advising people during those years, but not being able to actually manage clients’ investments, were key in the decision to create what is now WWM. We remember the past and learn from the mistakes we observed.

This time is different. Those are four important words, which are often mentioned by people regarding their investments. What is different now?

We often say that we cannot predict the future. We truly believe this. Can you predict the future? Thus, one of our core responsibilities is to provide you and your family with guidance and at the same time realize we are providing guidance, knowing that the future is inherently uncertain.

But if you are a client of our firm, this time will be very different for you than it was for Joe, due to the many disciplines and investment strategy that we utilize.

All our clients have written investment plans. Joe did not have an investment plan of any type, as we define it. Put simply, how much risk did he need to take? If Joe didn’t need to be really aggressive to meet his retirement needs, why did his brokers allow his stock allocation to be over 80%? We work with you to determine a stock/fixed income allocation based on your financial needs and goals, your risk tolerance and timeframe. This is the basis for a written investment plan.

We rebalance. As the stock market increases, we sell stocks and take profits (called “rebalancing”), so you can remain in alignment with your investment plan. As Joe did not have an investment plan, his advisors didn’t sell or take profits.

Once you have an investment plan, say 50% in stocks and 50% in fixed income, we monitor this. If stocks increase, as they have done over the past few years, then we would not allow your stock allocation to continue to grow to 60%, 70% or 80+%, as that is more risk than would be in your best interest.

We recommend being globally diversified, among many asset classes. Joe was not diversified. He was very heavy in the hot stocks of the late 1990s, owning AOL, Intel, Cisco and numerous growth funds loaded with similar types of companies. He was not adequately diversified. He had limited or no allocation to US large value or US small value stocks, International stocks, real estate or emerging market stocks.

Owning a globally diversified portfolio does not prevent major losses. However, as various asset classes often move differently, it is a rational way to structure your portfolio. For example, there is significant academic evidence that a globally diversified portfolio should outperform one that consists solely of US Large companies. See our blog post, Benefits of Global Diversification, for further information.

Being globally diversified means your portfolio will perform differently than major US market indexes, and quite differently some years. We expect this to occur. As the overall portfolio we structure is very different than the S & P 500 (an index of 500 large US companies), the performance of your portfolio should be different than the S & P 500. As we recommend allocations to small, value, International and Emerging Markets, all which have greater long-term expected returns than US Large companies, this should be to your benefit in the long term.

Joe was not diversified, as we define it. If we had a firm in the late 1990s and you were a client, we would have underperformed the Large Cap indexes. This may have tested your patience with our investment strategy. But if you were patient and disciplined, you would have been rewarded in the long term, as our investment strategy would have done very well in the succeeding years. When US Large and technology stocks got crushed in 2000-02, small and value stocks did very well.

Why are we discussing this? Because this time is not different. What is different is your advisor and our advice. 

This time can be different for our clients because:

  • you have a written investment plan, based on your needs and risk tolerance
  • we rebalance to keep your portfolio aligned with your plan
  • you are very diversified
  • we are disciplined and help you to be disciplined
  • we work with you so you will adhere to our successful long term investment strategy

Yes, we really wrote this

This week, the DJIA, an index of 30 large US stocks, is around 22,000.

On June 10, 2014, over three years ago, when the Dow was 16,946, we wrote the blog post below: It is as relevant today as it was 38 months ago.

During the same time period, the S & P 500, a broader index of 500 US large companies, increased from 1,936 to 2,475.

While we recommend a globally diversified portfolio of stocks, small and large, International and US based, the increases in US and International stock indices have been significant since June, 2014.

What should you do now, with the stock market near an all time high? (written June, 2014)

With the US stock market at or near an all-time high, should you be making investment adjustments now? If you have a lot of cash on hand, what should you be doing now?

The US stock market, as measured by the DJIA (Dow Jones Industrial Average) closed at an all-time high of 16,946 on June 10, 2014. But what’s even more interesting is where the stock market has been.

The DJIA is almost 17,000 today, but it was around 11,700 less than 15 years ago during January 2000.

Even more startling, less than 25 years ago, in July of 1990, it was 2,900.

Approximately 34 years ago, in February, 1980, it was 904.

This should help to provide you with the proper long-term investment time perspective.

If you are in your 60s, your life expectancy may be 30 years. For a married couple in their 60s it is very likely that one of you will live into your 90s. If you’re younger, your investment perspective should many decades.

Given this life expectancy information, you should understand why your investments in the stock market should have a very long time-frame. You should not be thinking about, or investing for, tomorrow, a month from now or even a year from now. Your perspective should be much, much longer.

You should not be thinking about what the economy or specific companies are doing right now. You should not be concerned with how Apple, Ford or IBM will do this week or next year. You cannot control or accurately predict any of this.

What matters most and what you should focus on is developing a proper, globally diversified long term investment plan, so you and your family can benefit from the world’s stock markets over the next 5, 10, 20 or more years.

We work with clients to develop an investment plan. This is not a fancy document or 40 page bound booklet. We determine the right amount of their money to invest in the world’s stock markets, based on their goals, age, and ability to handle the volatility of the stock market. Then we determine how much should be invested in very small companies, value companies, internationally and in emerging markets. These asset classes provide greater historical returns, yet most investors are vastly under weighted in these investments.

If you are not invested in the stock market right now, yes, we would invest in a globally diversified portfolio for the future. If you are invested now, we would review your portfolio to see if it is globally diversified.

We help our clients simplify their financial lives and consolidate their resources. We enable you and your family to achieve a sense of financial comfort and security. We manage your portfolio with discipline and take the emotion out of the investment process.

Do you have an investment plan? Are you seeing the real financial benefits of investing in the stock market?

Are you pleased, surprised or worried about the stock market?

Global stock markets have performed strongly during 2017. That does not mean that all individual stocks have done well, but on a broad basis, both in the US and globally, markets are up for the first 7 months of 2017.

How are you feeling about your stock investments?

  • Are you pleased with the gains in your portfolio?
  • Are you surprised by the market increases, given the slow but steady economy and political turmoil throughout the world?
  • Are you worried about the future for US markets, as many indices are at all-time record high levels?

Pleased: If you are a client of our firm, you should be pleased with the performance of your globally diversified stock portfolio. It is important to emphasize that we are firm believers in diversification, as diversification has many long-term benefits. Diversification is always working, which means that sometimes it helps you and sometimes it does not. For example, being globally diversified has been a significant positive in 2017, as International and Emerging Markets are outperforming US stock markets. At the same time, a large portion of the gains of US stock indices are attributable to a handful of US large companies, primarily in technology. For example, Boeing alone accounted for 1/2 of the July increase in the DJIA.

Surprised: You may be surprised by the gains of stocks since early 2016, and particularly this year’s gains. Even after the post-election increase in stocks in late 2016, which was attributed to the pro-business agenda of the Trump administration, stocks have continued to gain in 2017, despite the lack of progress in Washington.

We feel the 2017 gains are warranted as stock growth is generally correlated to earnings and the future expectations of earnings. As companies have reported earnings in 2017, they generally have been far more positive than negative.

This is also another benefit of our adherence to remaining invested in stocks for the long-term and not trying to time the stock market. You never know when stocks will increase, but statistically since 1946, stocks (as defined by the US S&P 500) have risen in 50 of the past 71 years. You are rewarded for your patience and resilience, even when you don’t expect it.

Worried: While stocks have increased significantly in recent years, there has not been a correction of US stocks (decrease of greater than 10%) since early 2016. There can always be reasons for concern and now is no different. Washington has been ineffective in passing health care reform and more important to the financial markets, there has been no real progress on corporate or individual tax reform. There are always global issues to be worried about and unexpected events can occur at anytime.

However, let’s go back to some of our basic principles. We believe in broad, global diversification. Global stock valuations are much lower than US stock valuations per many metrics, so global diversification continues to make sense.

Even if you are worried about certain issues or are concerned about when the next “correction” will occur, what can you do about it? We do not know when a correction will occur. No one can accurately predict this. And when a correction does occur (and they will occur), no one can accurately predict the bottom. You can’t with any consistency accurately predict when to get out of the market before a correction and when to get back into the market before the next recovery. Thus, it is best to stay in stocks for the long-term.

Our way to handle your worry and concerns about stock volatility is to handle it in advance. We work with you to set the stock allocation of your portfolio at a percentage that feels comfortable and reasonable based on your specific financial situation, goals, needs and tolerance for risk (the stomach test).

How do you feel now? We hope that you are pleased and surprised by the advances in stocks and your portfolio, but not worried.

If you are worried, give us a call, so we can talk about it.

Have you checked these recently?

The following are some ideas and reminders of things you should consider, which may prompt some good next steps.

Beneficiaries for your retirement accounts and life insurance policies: Are the actual designations on the forms what you intend? Have you reviewed them recently?

  • It is a good idea to review your beneficiary designation forms every few years, to ensure they reflect your current intent.
  • If you want to provide for charitable bequests upon your death and you have retirement accounts, these gifts should be reflected on retirement account designations, not as part of your will/estate planning documents.

Have you enabled the emergency function on iPhones and other devices?

  • For iPhone users, if you enable the emergency function within the Health app (which comes with the iPhone) and you are in an accident or incapacitated, a first responder can access critical information from your phone, even if your phone has security codes or Touch ID.
  • After going into the Health app, continue to “Medical ID.” Input your name, emergency contacts, and basic health information.
  • The Medical ID feature can be accessed without unlocking any other information on your phone. (Thanks to my kids for this recommendation, which I just did).

Do you know whether your financial advisor is a fiduciary?

  • We highly recommend that your financial advisor be a fiduciary, which means that all of their advice and recommendations must be in your best interest (even if it is not in theirs or their company’s best interest).
  • We are fiduciaries. Most brokers or financial consultants with major brokerage firms and banks are not fiduciaries. The interest of their company can come before your interests. For more information, see this blog post.


  • Are you using complex and different passwords?
  • Have you recently changed the passwords for some of the websites you use most and for banks and credit cards?
  • We highly recommend using an application like 1Password or a comparable password manager, which stores passwords and can automatically enter your passwords and user names for you. For more information, see this blog post, How to Securely and Efficiently Manage Your Passwords.

What is one thing which you are procrastinating on, that if you dealt with it, would enable you to move forward?

  • Think about this. We hope this helps you resolve something or move an issue forward. Procrastination can mean it’s important, but you just need to focus on it and determine the next step.

Have you checked your FICO score or your Social Security information?

  • FICO scores are important for interest rates on loans and applying for credit. You can get this for free from many credit cards. Email me for more information.
  • If you are not yet receiving Social Security, you should go to ssa.gov at least every few years, review your earnings history for accuracy and see a projection of your future benefits. Their website is quite secure and they have now added a second level of verifying your identification.


We hope these are helpful and practical for you and your family.

Investing for dividends or total return?

We are often asked about investment style and strategies.

One question we are asked is: whether we focus on high dividend paying stocks?

Or, do we invest for total return? Investing for total return means investing for a combination of growth and income from stocks, but not putting the primary emphasis on the dividend yield.

We recommend investing for total return. While dividends are an important component of a portfolio’s long term overall return, we do not recommend that you invest primarily in high dividend paying stocks.

While each client and investor is unique and has their own personal goals, a common goal is for your assets to grow over time. Thus, our focus is on what strategy will provide the long-term investment growth that you desire.

Some clients, particularly those in retirement, want income from their portfolio to provide for their living expenses, as well as other goals, such as charitable giving or gifts to family members. We view the optimal way to get this income is from the total portfolio, regardless of whether it is from the actual dividends of the mutual funds that we recommend or stocks that you may own. The income (withdrawals) that you desire do not necessarily need to come from only the interest and dividends that the portfolio earns, the withdrawals can come from the principal, particularly if the principal is growing over time.

We recommend focusing on the amount of your capital and its growth over time, rather than the annual dividend yield of the portfolio. If the stocks within the portfolio grow at a greater pace than the dividend yield, then you will be much further ahead.

Let’s look at a hypothetical example based on a sample of 6 large US company stocks which have greater than average dividend yields and compare them to the S & P 500 over the past 5 years. The dividend yield of these companies (dividend payout/stock price) is around 4%, whereas the S&P 500 dividend yield is around 1.90%.

If you had invested $500,000 in each of the 6 companies (GE, IBM, Pfizer, Verizon, Wal-Mart and Enterprise Products Partners, a large energy company) five years ago, you would have the following:


As you can see, the growth of the diversified portfolio did much better, increasing $2 million more than the 6 high dividend paying stocks. This means that you would have much more capital to withdraw from the diversified portfolio, regardless of whether it came from dividend income or the principal, even after accounting for capital gains taxes.

But what about the dividends? For the high yielding stocks, they would be paying about $161,000 annually, based oeir current value.

The S&P 500 is currently paying a dividend yield of 1.87%, or approximately $111,700 per year.

While this is $49,000 less than the 6 companies are paying in dividends per year, you would have $2 million more in investable assets from which to draw cash, if you needed it. We think most investors would rather have the more significant growth of their investable capital than the higher annual dividend income, as that amount is a fraction of the growth in the capital.

This is only an example, and a rather small one, but we feel it is very illustrative. If other stocks and different time periods were tested, the figures would certainly be different. However, I think the general conclusion would be the same, which is that a broadly diversified portfolio of companies will provide you greater investment capital over the long term than a collection of high dividend paying stocks. For example, over the past 10 years, 5 of the 6 stocks significantly trailed the S&P 500, so the conclusion would be the same over that longer time period, for these companies.

In the actual portfolios which we manage, we stress global diversification across many industries, geographic sectors and sizes of companies (large and small, growth and value). We do not recommend just investing in US Large companies, such as the S&P 500. This was used for only for comparative purposes in this post.

High dividend paying stocks tend to be companies which are having difficulty. They are often companies which are growing slower than the overall stock market, or even declining as a business.

  • IBM just announced their 21st consecutive quarter of declining revenue.
  • So while IBM’s stock pays a 3.73% dividend yield, which is double the S&P 500’s dividend yield, IBM’s stock performance has greatly lagged the S&P 500 over the past 5 years, losing almost 1% per year versus growth of almost 15% per year by the S&P 500.

One theme that I have noticed in recent years is the concept of legacy stocks, which many of these high dividend paying stocks are. These are companies which were in their prime in past decades, are in industries which have gone through significant changes or are quickly evolving now. In general, they are not the companies that are growing and providing the returns which have been driving world-wide stock markets.  We would recommend modifying your portfolio for the future if it now consists heavily of individual legacy stocks.

  • Wal-Mart is facing tough competition from Amazon and online retailing.
  • EPD is facing challenges due to the significant decline in energy prices.
  • IBM is struggling to compete against numerous technology companies.
  • Verizon is facing wireless competition which is causing revenue/subscriber to drop, as well as issues with content and keeping subscribers to their various businesses.
  • Pfizer is quite profitable, but large pharmaceutical companies are always looking for the next major drug.
  • GE has struggled as a company over the past 10+ years. It has undergone a significant transformation, purchased new subsidiaries and sold off other segments of their business.

Each of these companies may succeed in the future. That is not the key issue for us, as investment advisors

Our role is to provide you with the optimal investment strategy that will be durable and successful over the next 5, 10 and 20 years. We are confident that a globally diversified strategy of stock mutual funds will far outperform a portfolio consisting of high dividend paying stocks in the long run.


Notes: The above example is for illustrative purposes only. The mutual funds which we recommend own each of the above individual stocks, as a small percentage of certain funds. The illustration does not include the impact of advisor fees and taxes, which would affect actual investment results, but would not change the conclusion of the illustration.

The five year annualized return for the stocks cited above, which is the basis of the calculations in the illustration, are:

This means that the average return per year, over the past 5 years, for WMT (Wal-Mart) was 3.29%. During that same time period, the S&P 500 fund returned an average of 14.77% per year, over the past 5 years.