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.


Transitions, Discipline and Milestones

Ten years ago, during a beautiful fall week, we moved into our current office space. We enjoyed the picturesque view outside our windows of the leaves changing colors. Keith and I were excited about our future. The S & P 500 was around 1,250.

The US stock market had declined almost 20% during the prior 11 months, but we had no idea what would occur in the coming weeks, months and years.

Five years into our financial advisory firm, in our new offices, we soon faced the bankruptcy of Lehman Brothers, the AIG bailout and the financial crisis of 2008-09. At the bottom of the economic collapse, in March of 2009, the S & P 500 had declined to 682, down 57% from it’s October, 2007 peak.

Today, the S & P 500 is around 2,880. Worldwide stock markets have strongly recovered from the depths of the financial crisis.

As a firm, we have grown significantly over the past 10 years. As we mark the milestone of 15 years as a financial advisory firm, we are very fortunate and truly appreciate the loyalty of our valued clients. We appreciate the trust you have placed in us and are grateful for the referrals that many of you have made to friends and relatives.

As we look forward and back, some key lessons apply as much today as they did 10 years ago.

We had many conversations with our clients during the financial crisis.  We listened to their concerns and we encouraged them to remain disciplined, to stick with the investment plan we had developed with them. We continue to have these type of conversations, as economic and political challenges and uncertainty are always with us.

Many people thought the world was coming to an end 10 years ago, at least financially. It didn’t….and it has recovered. The recovery may have been slow, but as an investor, the past 10 years have been good ones. Our clients have been able to grow their assets and live off of their investments, depending on their stage of life.

This time was not different. The crisis of 2007-09 was not different from other market crashes which preceded it. The key is that financial markets recover. We didn’t know how or when, but we had faith that there would be an economic and stock market recovery. If you are going to invest in stocks, you need to believe that most companies will adapt and their earnings will grow over time.

As it is very difficult to consistently identify which companies, sectors and countries will succeed or fail in the future, we believe in diversifying broadly across many companies and geographic regions. This strategy gives you the best change of success and minimizes your risk by not placing concentrated bets.

Today, with many US market indices at or near all time highs, many are asking the opposite question. Have US markets reached new peaks? Will they go higher?

We believe in rational optimism and being rational to deal with uncertainty. These principles enable us to provide you with financial and investment advice that is timeless and will work, if you are disciplined and patient.

We remain rationally optimistic about the long term financial markets, both in the US and overseas. We know that we cannot time the markets and predict a peak. History and academic data teaches us that corporate earnings will continue to grow, which will lead to higher stock markets in the future, both in the US and Internationally.

We know that certain asset classes that we recommend will trail other asset classes at times, but over the longer term, this diversified strategy will provide you with a smoother and more successful investment experience.

If you focus on your long term financial goals, such as how much money you will need annually for retirement, you will have a much greater chance of success. We strongly encourage you not to be distracted by day to day headlines, politics and the barrage of predictions and economic forecasts.

Fall is a time of transition and change for many. School starts. Students move to college or begin middle or high school. These changes can be positive or negative. For those who are Jewish, next week begins the Jewish New Year, a time of reflection.

Over the past 15 years, Keith and I, along with our firm members, have dealt with all kinds of changes, both personally and professionally. Change, transition and unpredictability will always be with us. To deal with this, we remain very confident in our investment principles and guiding beliefs, which enable us to provide each of you with expert financial advice tailored to your specific situation. We want you to be disciplined and not make reactive decisions.

We hope this provides you with greater comfort and financial security, as we all deal with change and uncertainty.

Let’s Talk

When Average is Not Average

When we discuss future expected investment returns from US stocks, we say you should assume you will earn around 8-10% per year.

If you ask most other investment professionals, they would likely say the same thing.

In fact, from 1926-2017, the annualized return of the S & P 500 Index (1) was 10.2%. This is without any fees.

This means that over the past 92 years, the S & P 500 averaged just over 10% per year.

Amazingly, while it is widely stated that large US company stocks earn around 8-10% per year, the S & P 500 Index has never actually earned between 8-10% in any calendar year since 1926.

For some reason, the S & P Index has not had many years that are actually average. The returns diverge from their own “average.”

In years of discussions and past blog posts, we have explained that the actual year to year returns of the S & P 500 will vary greatly, as some years will be much better than 8-10%, some years will be much worse than 8-10%. Some years will be slightly better or worse than average. And we’ve always said that the future annual returns would not normally be right around 8-10%. But I didn’t know until this week how accurate that statement really was.

The closest actual return to the 8-10% average was in 1993, when the Index returned 10.1%. In 1992, the return was 7.6%.

As the chart (2) below shows, despite the wide dispersion of calendar year S&P 500 Index returns between 1926-2017, the Index has been positive far more years than negative.  There have been 68 positive years and only 24 negative years.  
The year to year variance from the historical 10% average return is the temporary risk that investors in stocks need to be prepared for, in order to reap the long term benefits of stocks, as compared to holding cash, CDs or bonds. The volatility in short term returns is the perceived risk of owning stocks.

As we all know, past performance is no guarantee of future returns.

However, it is important to have reasonable expectations and use evidence (and not forecasts or predictions), to help deal with future uncertainty.

While it is interesting to know that US large company stocks have averaged just over 10% per year over the last 92 years,  and it is an oddity that the Index has never actually returned between 8-10% in any year, the greater lesson is that US stocks, and International stocks as well, move higher more often than they move lower.

If you remain disciplined and adhere to our investment strategy, you should be rewarded, be able to sleep well at night and have a greater sense of financial security.


(1) 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 over time. You should also realize that the companies within the S & P 500 have changed frequently over this period, as companies grow, fail, merge and get acquired.

(2) Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio.  Past performance is not a guarantee of future results.  S&P data copyright 2018 S&P Dow Jones Indices LLC, a division of S&P Global.  All rights reserved.

Purpose and goals

We may underperform a major benchmark, the S&P 500*, this year, or in some other years.

We may outperform a major benchmark, the S&P 500, this year, or in some other years.

However, beating the S&P 500 every year is not our goal.

Our goal and purpose is to provide you advice and financial recommendations suited to your personal needs.

Our goal is to help ensure that you have adequate financial resources for you and your family’s lifetime.

For many clients, our purpose may be to help provide you with an annual income stream to live off of for the rest of your lives. This is a real and very important goal.

This goal, that you have adequate funds to live the life you desire, is accomplished over years and decades. It is not determined by whether we beat the S&P 500 this year or not.

If your primary financial goal is to conserve or maintain your investment portfolio for years and possibly decades, for yours and future generations, we can advise you so this goal can be accomplished.

The key is that focusing on beating a specific benchmark is not how you accomplish these goals.

You are most likely to succeed in accomplishing these goals by working with a financial advisory firm (like ours), doing comprehensive planning, being disciplined and utilizing a consistent and proven investment philosophy.

Succeeding financially and meeting your goals is complicated.  You have to know how to react to the markets ups and downs, the impact of constantly changing tax laws, handle uncertainty and the constant barrage of news, opinions and predictions.  We help you deal with all these complexities.

We intentionally structure your portfolio to be very different than the S&P 500, as academic evidence has shown that over long time periods, a globally diversified portfolio outperforms the S&P 500, with less volatility.

Investing and financial advice can have many goals and purposes.

We want to understand your goals. We want to help you succeed financially, so you can reach your goals. That is our purpose. 

Talk to us. We have a proven approach that works.

Why we recommend the direct, not alternate route

Why we recommend the direct, not alternate route

We recommend investments which generally meet the following criteria. They should be:

  • Understandable and transparent
  • Diversified
  • Low cost
  • Tax efficient, if needed
  • Not dependent on one or a few managers
  • Not dependent on someone’s attempts to make forecasts or predictions, to be successful
  • Liquid, so you can get your money when you want to

For fixed income investments, this would mean high quality individual bonds or other securities, or bond mutual funds, depending on one’s portfolio.

For stock investments, we recommend asset class mutual funds of various types, which together provide a globally diversified portfolio, such as US Large Company, US Small Cap Value or International Large Value, just to name a few.

Diversification is critical in developing a portfolio, as research shows that with both stocks and bonds, a diversified portfolio can provide greater expected returns along with less volatility, over the long term. This can be accomplished very effectively at a very low cost.

However, many people are attracted to “alternative” investments, in search of even greater returns or the promise of reduced volatility and good returns.

Alternative investments have many names and types. Examples include hedge funds, private equity, and strategies with names like market neutral, absolute return, long/short equity or managed futures.

We base our philosophy on research and evidence. And the evidence is that it is nearly impossible to identify an alternative investment in advance that will consistently outperform over the long term, after factoring in costs and taxes.

Based on research compiled by Dimensional Fund Advisors, the primary stock mutual fund provider we utilize, publicly available alternative strategy mutual funds have performed horribly over the past 10 years ending December, 2017, as compared to the broad US stock and bond markets. See Exhibit 2* below, which details these results:

This shows that these alternatives had annualized returns of less than 1% per year, versus stock and bond returns of around 8% and 4% per year, respectively. Clearly most publicly available alternatives were not beneficial investments over the past 10 years. The exhibit shows the alternative investments net of their fees, whereas the indices are not reflective of fees. Thus, I’ve stated the indices returns as less in this paragraph, to account for some approximate fees.

We generally do not recommend alternative investments for many reasons.

  • They are almost always very costly, with expense ratios of 1.4% for public alternatives and 2% or higher for private hedge funds, whereas we can build a globally diversified stock portfolio for around .3%. That would mean an alternative strategy would need to outperform our recommendations by over 1%-1.7% per year, just to be even due to costs. That is hard to do.
  • Many alternative investments are hard to understand. They can be like a black box. We want to understand what we are investing in. With many alternatives, you don’t know what the strategy is…and it can change very frequently. What stocks are they shorting today (which means they are betting that stock will go down)? They may only report their holdings a few times a year, so there is a lack of transparency.
  • Another factor is often portfolio turnover. Greater portfolio turnover generally leads to higher tax costs for investors. The average was 200% per year, which means the portfolio is replaced twice a year. If they were successful, and turned over the portfolio that often, gains would be short-term capital gains, which are taxed at the higher, ordinary income rate. Again, a bad result.
  • Liquidity. We want you to have access to your money when you want it. With our current investments, you can get access to your money within a few days. Many alternatives, even some real estate investment funds, limit your ability to withdraw your money to quarterly or even a certain dollar amount per quarter or year.

While there may be some good alternative funds, the benefits they tout do not usually pan out over time.

When evaluating alternative investments, you should consider if it will add a beneficial element, that you don’t already have in your portfolio.

If it meets that criteria, can it really reasonably increase your expected returns or reduce your expected volatility? If so, how confident can you be of these assumptions?

And, will it be cost and tax effective?

We are confident that the criteria we stated at the beginning of the post are solid, reasonable and in your best interest. We evaluate new and different concepts, but any new investment we would recommend must pass those standards, at least as of today.




Whitepaper, Alternative Reality, Dimensional Fund Advisors, August 2018.


*Exhibit 2: Past performance is no guarantee of future results. Results could vary for different time periods and if the liquid alternative fund universe, calculated by Dimensional using CRSP data, differed. This is for illustrative purposes only and doesn’t represent any specific investment product or account. Indices cannot be invested into directly and do not reflect fees and expenses associated with an actual investment. The fund returns included in the liquid alternative funds average are net of expenses.  Please see a fund’s annual report and prospectus for additional information on a specific portfolio’s turnover and the expenses it incurs.

Liquid Alternative Funds Sample includes absolute return, long/short equity, managed futures, and market neutral equity mutual funds from the CRSP Mutual Fund Database after they have reached $50 million in AUM and have at least 36 months of return history. Dimensional calculated annualized return, annualized standard deviation, expense ratio, and annual turnover as an asset-weighted average of the Liquid Alternative Funds Sample. It is not possible to invest directly in an index. Past performance is not a guarantee of future results. Source of one-month US Treasury bills: © 2018 Morningstar. Former source of one-month US Treasury bills: Stocks, Bonds, Bills, and Inflation, Chicago: Ibbotson And Sinquefield, 1986. Barclays indices © Barclays 2018. Russell data © Russell Investment Group 1995-2018, all rights reserved.

Standard deviation is a measure of the variation or dispersion of a set of data points. Standard deviations are often used to quantify the historical return volatility of a security or a portfolio. Turnover measures the portion of securities in a portfolio that are bought and sold over a period of time.

How long can this positive streak continue?

For 9 straight calendar years, the US stock market has gone up, with no down calendar years, as measured by the S&P 500. The S&P 500 is an index of 500 of the largest publicly traded companies based in the US.

By some people’s measure, on August 22, this will become the longest bull market in history, at 3,453 days.*

Should you be concerned about this 9 year positive run?

When will it end?

Is the US market heading into a bear market, which is defined as a decline of over 20%?

Let’s define a few things and give some perspective to these issues.

While the above statistics are accurate, the broad US Stock Market has not gone straight up during the past 9 years. There have been a number of major declines during this period.

  • From the Spring, 2011 to September, 2011, the S&P 500 dropped by almost 20%, depending on how it’s measured.
  • From May, 2015-February, 2016, US markets dropped around 14% and International markets and many individual stocks did far worse.
  • In early 2018, stocks dropped about 10% in less than two weeks, then again began their ascent to record levels.

Thus, while the chart below of the last 10 years of the S&P 500 shows a picture that generally looks like an easy ride, actually living through it was much more difficult.**

If you look at the S&P 500 chart of the last 12 months, you will see there were lots of up and downs…it wasn’t all smooth sailing…there have been plenty of choppy waves to deal with. **

What these pictures reflect is the benefits and importance of our long-term view of investing. Despite some significant down periods, if you remained disciplined and patient through the bleak years of 2008-09, and some of these down periods of the last 9 years, you have been very well rewarded.

As clients and long time readers of this blog know, we do not advise investing only in the S&P 500. Over the long run, a more diversified global portfolio has outperformed a portfolio of only the S&P 500. This more diversified portfolio, as we recommend, would also include small companies in the US and companies of all sizes around the world.  Please see this prior blog post, for more information on the benefits of global diversification.

Despite the long positive run of stocks, there will be a “next” downturn and many to follow that one. There have been articles in the media trying to identify what the cause of the next market downturn will be. There are always forecasters predicting imminent doom and the next crash.

None of these predictions will help your financial future. No one can accurately predict the future. No one can accurately and consistently time when to get out of stocks and then predict exactly when to jump back in at the bottom. The winning strategy is to remain invested in stocks, in an allocation that makes sense given your specific situation and goals.

While we do not see a crash of 20% or more in the very near future, the history of stock investing tells us that you need to be prepared for this to occur.

As we like to remind our clients, declines are an expected part of investing in stocks, which often occur when we don’t expect it. For example, US stocks have had a 20% or significant decline at least once every 5 years since World War II. If you count 2011, this still holds true.

A significant decline is not an if….as it will occur….the real question is when it will occur. There will be a major decline in the future, whether it is within the next 1, 3 or 5 years. After that, stocks will eventually reach new highs again at some point in the future.

If a major decline concerns you, there are things you can and should do. You should discuss this with us, so you and your portfolio are prepared for this eventuality. If you are financially comfortable and are still concerned or want to avoid some of the decline, then you should consider reducing the stock allocation of your portfolio now.

If you think the bull market will come to an end and you are more focused on preserving your capital, then you should be making changes to your investments…..now, not when you “think” the bull market will end. For example, if you are in retirement, are “set” financially and don’t need to take major risks with your investments, then now is the time to talk and take preventative action. Now is the time to plan and implement how to re-allocate some of your portfolio if you want to lessen the impact of the temporary losses that will occur in future downturns.

If you are younger or need to be more invested in stocks for the long term to be able to reach your financial goals, then you need to be emotionally prepared for the temporary downs and ups that will occur within your investment portfolio.

The keys are…..

Markets will go down.

That should be expected.

When they will go down is often unexpected.

Markets will eventually recover and reach new highs again….we just don’t know how long that will take.

If dealing with these decline concerns you, or you are more focused on capital preservation, then you likely have a greater stock allocation than you should have. You should talk to us to review how you should modify your portfolio.




*Zerohedge, Get the champagne out For US stocks:  In 14 Trading Days This Becomes The Longest Bull Market Of All Time , Tyler Durden, 08/03/2108, https://www.zerohedge.com/
**S&P 500 indices, per screenshots for the 10 years and 1 year period ending August 8, 2018, respectively.

You worry and we respond

Everyone has some type of financially related worry, concern or question.

  • It may be when can you retire.
  • You may want to know how much you need to save to be able to retire.
  • You may be concerned whether you will have enough money to live on for the rest of your life.
  • You may be concerned about how you will handle your finances if your spouse dies.
  • You might want to know, once you retire, how you will get the money you need from your investments.
  • You may want to know how much money you can spend annually, given your current or future investment portfolio.

Regardless of what your specific concern, worry or question is, it’s our role as your trusted advisor to understand your concerns and to address them with you.

We will provide you answers in clear English, not technical jargon. When I go to see my doctor, I want to be able to understand them. I want to easily understand what he or she says to me. Clearly. The first time.

We strive to answer your questions and explain these issues, regardless of how complex they are, in this fashion.

Over the years, our clients have told us that we excel at this. We are proud of this feedback and really strive to meet this service goal.

We know that investment performance is always vital and relevant. But in many of our meetings with clients and prospects, we tend to spend the majority of our time discussing topics such as those above, to address your real concerns, issues and questions.

We know that financial matters can be complex and appear very complicated. We also know that the stock market and investing can be fraught with uncertainty, fear and risk. We help you handle this.

It is our role to make complicated matters understandable.

Based on our extensive experience, we can provide you with confidence and greater assurance, even with future uncertainties.

It is our role to listen to you, understand you and provide you with advice and recommendations that will help you to have less worries and financial concerns.

We continuously strive to meet these objectives.


In late June, I wrote a blog post titled “What we know and don’t know.”  I suggest you read or re-read it again now, as it is quite relevant to this blog post.

The One Stock to Own for the Next 25 Years

While I was barbecuing chicken for dinner last night, I was reading my Twitter feed. I came across a post where a few financial advisors were responding to a question….what one stock would you recommend to buy and hold for the next 25 years?

To clarify, we do not recommend owning only one stock and would not consider this to be an investment strategy. We are firm believers in holding a globally diversified portfolio of many stocks across all industries, sectors and geographic regions.

But for this hypothetical question, I thought it would be interesting to consider.

I first thought about what stocks I would NOT recommend and why. The key concept that kept surfacing was innovation and change and what industries or companies would be most affected by significant change over the next 25 year period. And what kept occurring to me was that nearly every company or industry I thought of, change could or would be a huge factor.

Looking at industry categories, I ruled out energy companies, as traditional oil companies obviously face threats from alternative energies. The retail and consumer sectors are under huge pressure from Amazon and online competition, so while there will be successes, I cannot predict which ones they will be.

Healthcare providers will make money, but insurance and reimbursement pressures will limit or impact their futures. Some drug companies have been hugely profitable and successful over the long term, but they must constantly innovate, spend millions or billions to come up with their “next” huge drug and again, there is no way to predict which company will be able to develop the drugs of the future.

Industrials, manufacturers and utilities will also have winners and losers, but none of these areas had a company that excited me for the next 25 years, with the possible exception of Boeing.

Technology and related areas was an obvious choice to consider. The key issue was whether the successes of today will be the leaders over the next two plus decades. AOL and Yahoo were stock market darlings in the late 1990s, then both flamed out. Just because a company has been successful recently does not mean it will do great over the next 25 years. This is called the recency effect.

I did not consider very small companies or companies like bio-techs for this pick. To do that would be more like buying a lottery ticket or a crapshoot selection….it may either do incredibly well or bust completely. I viewed this as finding a company today whose stock will be very successful over the next 25 years.

Amazon is dominant in two major areas, at least, Amazon Web Services (AWS) and their retail sales business. My concern with Amazon is that since AWS is so profitable, the natural tendency in business is that very profitable areas lead other companies to enter that sector, which eventually drives down profitability. That is occurring now, as AWS is increasingly being challenged by Microsoft, Google, IBM and many others, both in the US and globally.

Apple is a strong contender. Today, they seem unstoppable in selling iPhones and this product has changed how we live, communicate and shop. In reality though, they only have 12% of the worldwide smartphone market share. Their customers are highly loyal and Apple will continue to generate revenue from customers through app purchases and other sources in the future. However, as with all technology, will they be replaced in the future? Will they be able to continue to innovate and develop new products and revenue sources? The biggest threat is that the product life cycle can be short. Will they continue to succeed or become a future Nokia, Motorola or Blackberry?

My other choices are financially related. JPMorgan Chase is the dominant US bank and a leader in credit cards. As more and more spending is done with credit cards, they will capture more of these fees every day. However, banks run into problems when the economy has a downturn, which inevitably will occur over 25 years. They have broadly diversified sources of revenue, from everyday consumers, wealthy individuals and corporations throughout the world.

Likewise, Visa is the worldwide leader in credit cards, with a 56% market share. It will be difficult for another company to replace them, but technological change could lead to other ways we pay for goods and services, which could reduce Visa’s business, as well as potentially force their fees down over time.

My last consideration is Berkshire Hathaway, but not because of Warren Buffett. He is near the end of his work life, unfortunately. He will leave a legacy of a strongly diversified company with businesses in insurance, utilities, railroads, industrials and many other companies and products, along with billions of holdings in other stocks. Berkshire will likely do well, but as it is already large and getting even larger, it may have a harder time outpacing the broad market, due to the law of large numbers. Also, it generates most of its revenue in the US, so is not as globally diversified.

So what is my choice and what are the lessons from this exercise?

It’s not a glamorous choice, but I would hold JPMorgan Chase for the next 25 years. Chase is already quite large and successful, and does not face some of the other technological challenges that the others do. As we can’t predict the future, my thinking is that banking, lending, credit cards and related services will continue to be needed. If they are able to innovate and deal with change, Chase can continue to be quite profitable.

It is quite likely that one of the other companies mentioned here will outperform it, but each of the others seem to face greater potential risks, at least conceptually, than Chase does. I would not be surprised if Apple and Amazon stock’s outperform Chase, as they have much greater opportunities.

Thinking through this question has only made me more comfortable with our investment philosophy of not trying to pick individual stocks, but rather hold a globally diversified portfolio of stocks. 

If we tried to pick individual stocks for you for your future, essentially this is the exercise that we would have to do for every stock choice. And it’s impossible!!

This lesson was quite vividly reinforced as I finished this essay Thursday morning, as Facebook lost about 18% of their stock value today, due to concerns about their future profitability and user growth. This again is why we are broadly diversified and don’t just recommend holding 20-30 stocks.

From a pure performance standpoint, the only thing I’m pretty sure of is that the best performing stock of the next 25 years may not even be a public company today…..or may not even exist. However, we would eventually own some of it in your portfolio in the future, within our diversified holdings.

If you have thoughts on this post and your hypothetical pick, please email me at bwasserman@wassermanwealth.com. We will see what happens in the future.

Guidance for a Key Social Security Decision

Social Security benefits are more significant than many people realize. The amount you collect from Social Security could be $15-30,000+ per year, depending on your earnings history. As life expectancies increase significantly, Social Security benefits for a couple may be more than $1 million.

Social Security income is not subject to fluctuations and volatility like the stock market, which is a great source of stability in determining your financial future.

One key decision surrounding Social Security is when to start receiving benefits. This is the main topic of this post. For more information on other aspects of Social Security, please see our prior post, Social Security Basics: What you Should Know.

The earliest you can begin receiving Social Security retirement benefits is at least age 62. You must have earned at least 40 work credits during your lifetime, meaning you earned at least $4,800 per year for 10 years.

Your monthly Social Security benefits are based on “Full Retirement Age,” or FRA. This is the age when you can receive 100% of your Social Security retirement benefits.

  • Historically, this was age 65, but it is now gradually increasing to age 67.
  • For those born before 1943, FRA is before age 66.
  • For those born between 1943-1954, Full Retirement Age is age 66.
  • For those born between 1955-1959, FRA is 66 plus additional months.
  • If you were born in 1960 or later, your Full Retirement Age will be 67.

The age that you begin collecting Social Security determines the initial amount of benefits that you will receive for the rest of your life.  It is that important.

If you begin collecting before your Full Retirement Age (FRA), your benefits are permanently reduced. If you wait until after your FRA, your benefits will be greater.

  • If you file for early retirement payments at age 62, your monthly benefits will be permanently reduced to approximately 75% of the FRA benefit amount.
  • If you wait to receive benefits until after FRA, your benefits will increase by 8% per year, for each year after your FRA year, until age 70.
  • If you were born between 1943-54, delaying your benefits until age 70 will increase your monthly benefit to 132% of your FRA benefit amount.

Given the above information, why wouldn’t everyone just wait until age 70 and receive the maximum amount possible, based on their wage history? This is where financial planning and our advice can be so valuable.

We feel that this decision should be based on each person’s or family’s specific situation, and clearly not everyone should wait until age 70. We actually recommend that most people begin collecting Social Security well before age 70.

Though many articles encourage people to delay starting to receive Social Security for as long as possible, so many other variables should be considered that “one size fits all” advice should not be followed for this decision.

We recommend a comprehensive review of your full financial situation, as well as other non-financial factors. Key factors are when you want to retire, work part-time and your quality of life. If receiving your benefits earlier enables you to retire and that is a priority, then waiting years to receive Social Security does not make sense.

If you have any significant health issues or your family does not have a history of longevity, then you should not delay beginning to receive Social Security. As a rule of thumb, if you begin collecting around age 62 (or your earliest eligible age), you need to live longer than 82-83 for that decision to have been a “negative” one in terms of total lifetime benefits.

Even with longer life expectancy, no one can know if they will live until their early 80s. Thus, we feel that collecting early is a good and rational decision for many clients.As Social Security is a given, at least for decades, collecting your benefits could delay the need to withdraw/spend some of your other investable assets, if your Social Security benefits replace what you would have withdrawn from other sources.

We work with clients to evaluate both the financial and non-financial aspects of when to begin collecting Social Security. This is part of long term financial planning, which can be done many years before you reach your 60s. Along with the Social Security Administration’s projections, we have financial software to assist in planning for decisions like this. We would incorporate Social Security, along with your other assets and financial goals, to help you make this very personal and critical decision.

We remind you that there are many technical details regarding Social Security, including when you retire and your lifetime earnings. We recommend that you review our earlier blog post, as well as consult with a financial professional regarding your specific situation, in making this decision.


How a credit card can save lots on trip insurance costs

My wife and I just booked a trip to Spain for September. As this will be my first trip to Europe, it has been quite a learning experience already.

While this blog generally focuses on investing and financial topics, we know that our clients love to travel. We hope you find this informative and helpful.

I’ve learned that many travel experts (as well as my parents!!) highly recommend trip insurance, and significant medical evacuation coverage in particular.

Medical evacuation coverage is recommended in case you are seriously injured while traveling and need to be taken by ambulance, plane, helicopter or other form of transportation to a medical facility, if you then later need to be transported to a better hospital or eventually to a hospital back in the US. Coverage is recommended for $500,000.

I have a premium credit card, which unbeknownst to me, provides very good, but not optimal travel insurance coverage. As I’ll explain, my costly credit card actually saved me more than $1,100 on the travel insurance. If I was older, the savings would have been even greater!

Comprehensive trip insurance for our trip purchased as a separate insurance policy would have cost about $1,200. This would cover trip interruption and cancellation (which would have reimbursed us for the non-refundable tour costs if we couldn’t go because of a medical emergency between the time we booked the tour and the departure date). This would apply to an emergency to me, my wife, any of our immediate family members, such as parents, children or siblings, and even a broader range of relatives. The policy also provides up to $500,000 of medical evacuation costs and other coverages. The policy cost is based on your age and cost of your trip.

My Chase Sapphire Reserve credit card costs $450 per year, but gives $300 in travel credits annually, so the net cost is really only $150. One of the card’s features is a range of trip insurance coverages, including up to $20,000 of trip interruption coverage, similar to what I described in the preceding paragraph. However, they only provide $100,000 of emergency medical evacuation coverage, which is considered inadequate.

Thus, the credit card’s trip insurance coverage was good, but I still needed another policy for emergency medical evacuation.

Through my travel agent for this trip, I contacted an insurance company that provides a range of trip insurance policies. The trip insurance company is a subsidiary of Berkshire Hathaway, which I viewed as quite positive. For only $92, we were able to purchase a policy that has very minimal coverages in most areas, but has $500,000 of medical evacuation coverage and $50,000 of medical benefits. This policy will be the primary insurance and the credit card coverage will be supplemental on top of these benefits.

I recommend that you review your credit cards if you are planning a major trip in the future, especially a cruise, pre-paid tour or trip outside of the US, where your costs are paid up-front and usually non-refundable.

You may find that it is advantageous to obtain a premium credit card with travel insurance coverages and use that credit card to pay for such a trip. That is key, as you must charge the respective trip’s cost on that credit card for their insurance coverage to apply. Even though you may have a hard time paying a $400+ annual credit card fee, it may actually save you many times that amount versus the cost of obtaining full, comprehensive trip insurance on its own. Plus, these premium credit cards have many other benefits, depending on your traveling and other features. See my prior blog post on credit card and travel benefits, 12 Travel and Credit Card Tips for Greater Value and Enjoyment Part 1 and Part 2.

While I’m not advocating any specific credit cards, it appears that the Citi Prestige and Chase Sapphire Reserve credit cards provide broad trip insurance benefits. There may be others as well. Surprisingly, American Express’ Platinum card does not offer trip insurance coverage for interruption, cancellation or medical emergencies, such as medical evacuations.

Please view this as general advice, as trip insurance policies have many details and conditions. You need to pay for the trip/tour/cruise on the card that provides the insurance benefits. You should review your own personal situation, as well as the details of any insurance policy provided via a credit card benefit or a stand-alone trip insurance policy.

If you purchase a separate trip insurance policy, whether for comprehensive coverage or specifically to get evacuation coverage for a trip outside of the US, it needs to be purchased promptly after you book/pay for the travel. In my case, the insurance policy needed to be obtained within 21 days of my initial trip deposit or payment.

For the insurance coverage provided as a credit card benefit, you don’t need to do anything at the time of booking. You only need to contact them when you have an issue that would warrant an insurance claim.

I would also recommend that you bring copies of any of these policies and the respective contact information with you on the trip, as you would need to contact them in case of an issue. It would also be advisable to give the information to a close family member who is not traveling with you. For the medical evacuation coverage, the company needs to be informed immediately and they must approve most expenses in advance.

Now that I’ve learned about this, I will soon be purchasing an additional set of supplemental trip insurance policies, as I’m planning to take my two sons to Greece around Thanksgiving to visit my daughter, who will be studying abroad this fall as part of her junior year in college.

As we often tell our clients, it is important to save and invest, but it is also important to have great experiences and be able to travel while you are healthy and able to do it. I’m thankful and looking forward to be able to go on both of these trips.

Hopefully none of these insurance policies will be needed, but I do feel more secure knowing that I will have them.

We can’t control the future. But we can help you plan to minimize your risks and help you feel more secure.