Enough

Blog post #402

How much is enough?

How much money do you need, to have “enough”?

How much money do you need to support your standard of living?

How much money do you need to maintain your lifestyle, shop, travel, enjoy yourself, pay for medical expenses, support charitable causes you value….as well as provide financial support to children, grandchildren or relatives?

These answers are obviously very personal and will be different for each of us. One of the roles that we play as financial advisors is to help you, if you need it, to quantify how much money you will need in the future, to support the lifestyle that you desire.

In developing your investment plan, how you define “enough” is vital, as it defines your need to take risk. The more wants and needs that you desire, the larger the portfolio you will need to support your lifestyle. The more financial assets that you need, the more financial risk that you may need to take, and for how long, depending on what assets you already have and your ability to save.

If you already have adequate resources to support your lifestyle, then you would have less need to take financial risks. We would work with you to focus on maintaining your assets, taking intelligent steps to reduce your risks, such as being broadly diversified and determine an appropriate exposure to stocks. If you have already “won” the financial game, meaning you have adequate assets to meet all of your needs, your plan and strategy should be developed so that you don’t permanently lose a significant portion of your financial assets.

If you already have significant assets, then you should consider whether your portfolio has excess risk. Is the risk you are taking to reap potential stock market gains worth it, versus the potential negative outcome of financial losses?

A few things to consider. As your wealth and portfolio grow, some people convert what were once desires into needs or wants. Desires become expectations and reality. A vacation or trip that once seemed unattainable becomes an annual part of your life. You go from one home to wanting a vacation home. The nice car becomes a luxury car. These are all choices each of us make. Myself included.

These changes, which can occur gradually over time, can increase the need to take risk (and to save more), to cover the additional expenses as your lifestyle changes. If you need to take on more risk, you would need to increase your equity allocation. And that can lead to problems when risks appear, such as in 2000-2002 and 2007-08, and other time periods. While these losses were not permanent, they can be emotionally difficult without proper guidance, planning and your emotional ability to handle the risks and market volatility.

We advise clients when developing their investment plan and asset allocation. It is generally important to have some exposure to stocks, so your portfolio has some opportunity for growth which exceeds the rate of inflation, so you don’t lose your spending power over the long-term. But this may mean that if you have adequate (enough) resources for your needs, you likely don’t need to have more than 50% (and maybe even less than that) invested in stocks.

Some risks are worth taking. Sometimes you need to take long-term, rational financial risks, especially if you need to accumulate and grow your financial resources over a long time period.

However, some risks are not worth taking, or risks should be reduced. Prudent investors should not take on more risk than they have the ability, willingness or need to take.

The important question to ask yourself, and discuss with your financial advisor, is where are you in this financial game? What inning are you in? Are you winning, losing or still have a long way to play? How much risk do you really need to take?

If you have already won the financial game, are you only taking the financial risks which need to be taken, and not excess risk?

We would be pleased to discuss this important topic with you, or with others close to you, who could benefit from such a discussion or portfolio review. 

Talk with us.

This blog post was inspired by “Enough,” an essay in Appendix E of the book Reducing the Risks of Black Swans, by Larry Swedroe and Kevin Grogan, 2018 Edition.

Freedom and opportunity

Blog post #401

As we celebrate the long 4th of July weekend, we should be thankful for the freedom and opportunities which we have in our country.

We should be proud about many aspects of the US and our history.  However, like most other countries, companies, institutions and individuals, our country has room for improvement. We can all strive to be better.

We should be grateful for the incredible innovations and thoughtfulness that the our country has as core, guiding principles based in the Constitution and Bill of Rights.

We should celebrate capitalism and the opportunity that it has provided to so many of us.

We should celebrate innovators, as well as the people who protect and serve our nation, both past and present.

We should celebrate the freedom of the many choices that we have, including the freedom to get an education, choose a career (or a few of them), earn, save, spend, take risks and invest money freely, without the government controlling all of our actions.

We hope that you celebrate and reflect upon the vast freedoms, choices and opportunities which our country enables us to have.

If you are sometimes overwhelmed by all these financial choices, you know that you can rely upon our firm to help guide and advise you in making sound financial decisions.

We hope you enjoy the 4th of July holiday weekend with your family and friends!

A Milestone and reflections

Blog post #400

Numbers can represent milestones. Significant events. Progress. Moving forward. Growth, age and experience.

This is the 400th blog post we have written as a firm. 

What began as irregular blog posts in 2009 became a weekly commitment 5 years ago, in June, 2014. Since then, writing weekly has been a firm-wide effort, which involves coming up with an idea, writing, research and editing, compliance reviews and the final processing so the blog post is emailed to you for Friday am reading and adding to our firm’s website.

For me, as the founder of WWM, and primary author of nearly all of these blog posts, it represents a true source of pride and commitment to our clients. It represents the dedication and discipline to write, research and communicate to you, our clients and friends across the country, about relevant topics on a timely, regular basis.

There are very few independent financial advisors that have made this type of commitment to their clients to produce their own, original content on a weekly basis. We hope you find this valuable and helps you to be a better and more successful investor.

As this can be thought of as a milestone blog post, I wanted to share some bigger picture thoughts. Lessons. Key advice. Reflections since founding this firm in 2003.

We truly value the client relationships that we have developed. We take very seriously the trust that each client and their family places in us. We are confident that putting our clients interest first and using a transparent business model are vital to our past and future. That we own the same types of investments as our clients should give you even greater confidence that we strive to always act and be on the same side of the table as you, our clients.

During informal conversations, I have sometimes reflected that clients come to us for investment advice, but we can (and do) provide you with so much more. We help to determine a safe and reasonable annual withdrawal rate during the retirement phase of your life. We assist with college funding, retirement planning and analysis, aging, life transitions, estate planning and charitable giving. It brings us great satisfaction when clients request our input and advice on important decisions and transitions in their lives.

One of the core elements of our success was the adoption of an investment philosophy that we have been able to stick with, through all kinds of market ups and downs, as well as dramatic changes in the economy and companies, over the past 16 years. We are able to communicate our investment philosophy to clients, so they can understand it, adhere to it and appreciate that it is rationale and not guess work. More importantly, we continue to be confident that our core investment principles are valid and should remain so for the future.  Please read our blog, “A Philosophy You Can Stick With”, for further reading on why having an investment philosophy that we believe in allows us to be more disciplined and help our clients adhere to their financial plan.

Structuring a broadly diversified, global portfolio means that during some time periods we will outperform certain widely cited indexes, and at other times we will underperform these indexes. We structure and tilt our portfolios for the long term, towards asset classes that we believe will provide you with the best chance of long-term investment success, such as small and value, with significant International exposure. Sometimes value will underperform growth, or large companies will do better than small companies. We realize and accept this and explain this to you when we begin our relationship. We discuss and write about this often. We feel that providing you with guidance and discipline should help you to reach your financial goals.

One of our core principles since day one has been globally diversified stock portfolios, constructed with low-cost asset class mutual funds. There have been times, such as in recent years, that investing primarily in the US has been more successful than having a significant International allocation. As we base much of our investment advice and guidance on academic data, and not predictions, we remain confident that over the long term, our belief and adherence to being globally diversified will be beneficial.

While we listen to and read extensively from others we respect and trust, we make our own firm policy decisions after careful evaluation and analysis.

One of the few major portfolio changes we have made relates to commodity holdings. Many years ago, prior to 2008-09, academic data showed that adding commodities to a diversified portfolio would provide even more diversification benefits, as a hedge against inflation. The thought was that a commodity investment, with a significant component of oil related holdings, would provide good returns, particularly when inflation rose. As a firm, we later made the decision to drop most of these commodity allocations from client portfolios, as we perceived that the inflation hedge may not exist as often in the future because of the huge structural changes in the oil industry, mostly due to the growth of the US fracking industry. This has turned out to be a good strategic decision.

As interest rates dropped in the past decade, we made the decision to invest in high quality corporate bonds for certain clients who hold large fixed income investments. Some in our industry feel that high quality corporate bonds are not worth the additional default risk. We make the decision when we purchase new fixed income investments for clients, if the high-quality corporate bond interest rate premium is worthwhile over CDs and government securities, that this is a beneficial risk-reward trade-off. We remain confident that this has been very beneficial for our clients.

Another area that we differ from many advisory firms, both small and large, is our avoidance of many types of alternatives investments (such as alternative lending, reinsurance and hedge fund like investments). We believe that the investments we own and recommend to you should be as liquid as possible, have low fees, and are understandable and transparent. We have evaluated many such alternatives, and we remain very comfortable that our policy in this area has been to your best interest.

We wish that we had a clear crystal ball for the future. Unfortunately, we do not.

What we do offer to you is our goal of providing excellent financial advice, dedication to client service, the continued value of being lifelong learners in many areas of financial and investment matters, the intent to listen to your questions and concerns, and the commitment to invest in people and technology to provide the level of service and advice that you deserve.

We plan to remain disciplined and stick with our commitment to communicate with our clients regularly, via this blog, phone calls and meetings with you.

Thank you for reading.

And thank you for being a loyal client!

Good Decisions…..A better financial life?

Blog post #399

To be a good investor, you need to be able to make many good decisions over your lifetime.

Good decisions should be made rationally, not based on emotions. There will be circumstances and situations when time is of the essence and you would be best to act quickly.

Working with an advisor as a guide can help you make even better quality decisions.

You may not own any Bitcoin, but you can learn some great lessons from what has occurred to the price of Bitcoin over the past few years…..and what decisions those who have owned Bitcoin could or should have made.

Bitcoin is a type of currency, but it is not an investment that has a discernible value or worth. Other investments, like a company stock, bond, mutual fund, real estate, collectibles or commodities have prices and values that fluctuate, but there are generally underlying ways to value them over time.

Importantly, our firm does not consider Bitcoin to be an investable asset and we don’t recommend it to our clients. We consider it to highly speculative and very risky. For further background on Bitcoin, see our blog post “Bitcoin Mania: What’s it all about”from December 14, 2017.

The following are selected prices ranges of Bitcoin over the past years:

As you can see from these figures, the price of Bitcoin has fluctuated widely, both increasing and decreasing. It has been very volatile.

As discussed above, unlike other types of investments, we are not aware of a method to determine Bitcoin’s relative value.

Thus, if someone has decided to buy Bitcoin, we would recommend that they take advantage of price increases to sell some portion of their holdings. You must monitor the price constantly, be decisive and act when the time is right. For example, if you had Bitcoin in December, 2017, you should have sold some then, when the price soared to $16-17,000. The price has more than doubled during the past few months, and risen significantly in the past weeks. Now would be another appropriate time to take some profits. Waiting a few weeks to see what happens would not be rational.

When we invest for our clients, generally in asset class stock mutual funds and conservative fixed income securities, we don’t need to react with quite the same level of speed, as Bitcoin prices have been so much more volatile than stocks.

However, we do monitor and react with decisiveness and speed when appropriate. We are regularly monitoring client accounts for rebalancing and tax loss harvesting during periods of market declines and rebalancing as markets increase. Unlike some investors or advisors that only rebalance or tax loss harvest once per year, we act quickly when market and situations warrant it, as prices can change rapidly. For example, in late 2018 and early 2019, when stock markets decreased then increased, respectively, we placed trades to rebalance or recognize tax losses for clients as appropriate, based on market and timing opportunities. We did not wait, as the opportunity to act and obtain these benefits were gone within days or weeks.

Someone who holds Bitcoin may feel that because the price briefly went above $15,000 in December, 2017, it will reach that level again. There is no way to know when or if that will happen. You should be disciplined. You should not get emotionally attached to this or any other investment. You are best to follow the concept of buying low and selling high. If you bought some Bitcoin for way less than the current price, which is now around $9,000, then you should sell some of your holdings and be happy with your gains. Do not be too greedy.

We are rational buyers and sellers of investments on behalf of our clients. We have a plan in place for each client, called an Investment Policy Statement (IPS), which guides this process. We alleviate the buying and selling decision process for clients, which can provide them with greater peace of mind, as they know we are monitoring when to make these decisions and act. By acting rationally and having an established process, we are not making emotional decisions.

If you own Bitcoin and know you probably should be selling some of it now, but you can’t do it, you are likely letting your emotions control your actions. That is not the ideal way to handle financial decisions.

Diversify. Don’t have too many of your eggs in one basket. This seems so simple and logical, but many people evolve into this situation by owning company stock, receiving stock as an inheritance or getting lucky with Bitcoin they may have bought years ago. It is generally not a good idea to have more than 5-10% of your investable assets in any single investment (not including diversified investments, like a mutual fund). You cannot be afraid to take some profits. Even if you sell a percentage of what you own now, and retain a certain amount, you have to learn not to regret taking your profits….as there can be just as much chance the price could go down, or up, in the future.

When we design portfolios for clients, we evaluate how much risk they need to take, in order to reach their financial goals. We construct portfolios that are broadly diversified across many industries, asset classes and throughout the world. We want to avoid the risk of one bad thing that could happen to any company from having a material impact on your financial future. This is rational, logical and just makes sense.

If you have a significant portion of your portfolio in a few stocks or something like Bitcoin or gold, then you are taking on more risk than is necessary. Even if you own lots of a stock that has done really well in the past, like Apple or Amazon, there is no guarantee how that stock will perform over the next 5, 10 or 15 years.

We believe in broad diversification, knowing that it may not be as exciting. But this approach will likely enable you to reach your financial goals and also do it in a manner that will allow you to be less concerned about your finances than if you only held a few stocks in your portfolio.

We can help you be more decisive, rational and less emotional about your investments. Just talk with us.

In Your Best Interest

Blog post #398

When you buy something, you want to know what you are buying. Or you should know what you are getting.

When you want to buy some packaged ice cream, you make a series of decisions.

  • You may decide you want to go for taste, not low calories.
  • So you purchase some Haagen-Dazs, Ben & Jerry’s, or your favorite local brand of ice cream. You may have had them in the past and know they will satisfy your craving for ice cream.
  • You can decide how much you want to eat. The package provides you with the calorie and fat content, so even though you didn’t buy the “low-fat” product, you can easily see the information and choose how much you want to eat in each serving.
  • The key is that the packaging provides you with information that is transparent. You can read the label and make an educated decision.

What does this have to do with investing and your financial future? A lot.

In most important decisions or situations you face in your life, you hope that the people or advisors you work with will always have your best interest in mind.

When you go to a surgeon, you hope the surgeon will do his or her best. You hope the surgeon’s only objective that day is for a successful surgery. You hope the surgeon is using the newest and best tools, techniques and medications. You hope the surgeon is not choosing to use 2nd class technology or equipment because she is being compensated or getting other benefits from a medical supplier.

When you retain a financial advisor, you should want them to provide you with advice, guidance and recommendations that are solely in your best interest.

However, the financial industry is not set up this way.

Our firm, as Registered Investment Advisors (RIAs), are legally bound to make decisions that are in our clients’ best interest. Isn’t that what you would want and expect?Don’t you want an advisor that is going to be transparent about their fees and costs, and clearly explain the internal fees of the investments that they recommend? We would want this….and we are transparent about all these matters.

However, brokers at the major brokerage firms and banks don’t operate under these same very high standards. Now, they operate under a suitability standard, which means that an investment or product can be recommended to you, even if there are better or less expensive choices, as long as they are “suitable” for you.

Under current standards, a broker could be making decisions on your behalf, but influenced by compensation structures that impact their decision process. They are supposed to disclose these conflicts and costs, but in reality, these disclosures are provided to their clients after the investments have been purchased.  Further, this  information is buried in long and complicated documents like prospectuses, which few people ever read, or can understand.

Is this really what you want?

Do you want an advisory firm that will always strive to recommend what they feel is in your best interest? Or, do you want a broker which makes decisions on your behalf that may not be “best” for you, but would be “good” for you…..but better for them, than another investment choices?

We bring this to your attention because the SEC last week approved new regulations for the investment industry that will be effective by June 30, 2020, but the new rules will continue to allow for two somewhat different standards.

The new rules will feature “Regulation Best Interest,” which will raise the bar for the brokerage industry, but it will still be lower and less transparent than the standard for a firm such as WWM.

WWM will continue to have a higher standard of fiduciary conduct to act in your best interest, now, and after these new rules become effective next year.

WWM is very transparent about how we are compensated. Our only compensation is from fees paid by our clients, based on the assets we manage for you. If your assets increase, we both benefit. If your assets decrease, our revenue goes down. We are on the same side of the table as our clients. We are not paid by any mutual fund, investment provider or custodian.

However, now and under the new rules, brokers can be compensated for total products sold and rewarded for asset accumulation. Current conflicts, such as contests for the sale of a specific product will be allowed to continue for another year. Brokers will be permitted to continue offering proprietary products and use compensation to incentivize sales.

If you have accounts only with WWM, you do not need to be concerned about such practices.

If you have assets at major brokerage firms, banks, insurance companies or other financial institutions that are not RIAs, you should be aware of these matters. You should ask questions, or we can help you to review your accounts and help you to understand what you are really being charged.

We are not saying brokers are bad, but the manner of compensation and conflicts of interest which can and do exist may not be in your best interest.

You should be fully informed with transparent information.

When you buy food, you can read the label. You can then make an informed decision.

As it is hard to read a prospectus, maybe you are better off with a financial advisor like WWM, that is clearly working only in your best interest.

Talk to us.

Source:

“What’s in the final SEC advice rules?” Investment News, by Mark Schoeff Jr. and Jeff Benjamin, Pages 10-11, 6/10/2019

Is the a better way?

Blog post #396

How do you make key financial decisions?

Are you up to date on all the issues you need to know?

The world keeps changing at a seemingly faster pace.

Decision making, especially in regards to financial matters, can be complex to begin with. Then factor in the rapid pace of change and it is clear that using a financial advisor, and sometimes a team of advisors, should help you make better and more informed decisions.

Let’s consider some of the financial issues that you may have to deal with during your life and how they have changed over the years.

Saving for Retirement: Decades ago, most workers had pension plans, which provided income for retirement. Now, this type of plan is almost extinct within corporate America, except for some government employees and teachers.

Today, most people are primarily responsible for their own retirement planning. You can save through 401(k) and 403(b) plans, for non-profit organizations, as well as IRAs, Roth IRAs, and Roth 401(k)s. These plans come with many choices. You must decide how much you should save, to fund your retirement. You should consider whether your employer provides a match and whether your contribution maximizes this match.

You need to decide how to invest this money, as your employer does not provide investment advice. Some plans come with many choices, dozens or more than a hundred is not uncommon. Do you coordinate your retirement savings allocation with your other investments? Do you realize that certain asset classes would be best to invest in a tax-deferred account? Do you consider the investment costs of the retirement plan investment choices and how they compare with your other investment choices?

Consulting with us as your financial advisor about how best to save and plan for retirement could be quite valuable, providing you with clarity and useful information.

Saving for college: A few decades ago, when my children were young, we saved money for their college education in what was known as UGMA accounts (Uniform Gift to Minor Accounts). These accounts are subject to Federal and possibly state kiddie taxes, which have become more burdensome in recent years.

Today, most states offer tax-deferred college savings plans called “529 plans.” Using a 529 Plan is more advantageous, as under current tax laws the UGMA accounts would likely incur taxes, whereas a 529 plan may avoid all income taxes.

However, you still must decide which plan to use, and how to invest the money. There are major differences between plans and just using an age-based allocation may not be the best strategy from birth until your child reaches college.

Consulting with us as your financial advisor about college savings strategies could be quite valuable, providing you with clarity and useful information.

 

Other examples of financial issues and topics which have changed dramatically over the past years are….

• Mortgages and home equity loans
• Life insurance
• Long term care insurance
• Estate planning and estate tax laws
• Tax laws, which are constantly changing
• Charitable giving
• Social security distribution planning
• Retirement plan distribution planning

Consulting with us as your financial advisor about these topics could be quite valuable, providing you with clarity and useful information.

Investing: It is obvious that the economy and the investment world is always changing. The rate of change is rapid. It is hard to predict which companies, and therefore their stocks, will succeed or not.

How can you determine which investments to choose? Which investments have the best chance to help meet your short and long term goals? How should you react to news, market predictions and swings in the stock market? How much of your money should be invested in stocks versus safer investments, such as fixed income? How do you decide how much of your money should be invested in the US and how much overseas? How much risk do you need to take? And what are the tax ramifications of all these investment decisions?

Working with us as your financial advisor for your investments can be quite valuable, provide you with clarity and a greater chance of long term investment success.

We feel there is a better way….which is to work closely with a financial advisor, such as our firm, on all the various financial decisions you face during your lifetime. By working with us, these matters can be discussed, analyzed and coordinated in a rational and effective manner.

We look forward to helping you, and others you know, make decisions like these.

When the unexpected occurs….are you prepared?

Blog post #395

Are you and your loved ones protected if the unexpected occurs?

Do you need life insurance? What kind? How much?

These are important questions and the answers can be complex. We can provide you with valuable and useful guidance, both in this blog and discussing this with you.

The most common purpose of life insurance is to provide replacement of income or earnings for family members who survive a spouse or parent who dies prematurely, or before the family had built up adequate resources.

If you have loved one(s) who depend on you monetarily and you do not have adequate savings or investment accounts if you were to die, then you likely have a need for some form of life insurance. Good financial planning would guide you to have savings and life insurance to cover living costs in excess of what your survivors can generate, to cover basic living expenses, such as housing, clothing, everyday expenses, as well as what your family may want to provide for college education, if you have children who will likely be attending college. Life insurance can also cover funeral expenses and other items, such as outstanding debts, including car loans and car lease obligations.

How much life insurance coverage do you need?

Everyone will have different needs for life insurance, based on their assets, age, stage of life and other specific issues. If you are in your 30s or 40s, have children and are just beginning to save for college and retirement, you may have a significant need for life insurance. If your children are grown and on their own, and you have significant assets, you may have much less need, or no need, for life insurance.

You should consider how much money your loved ones would need in both the short and long term. Ask yourself what are the immediate expenses they would need to cover if you passed away and how much money they would need for the future? Especially if you have children. You should consider your housing costs, property taxes and insurance, as the later items likely increase over time.

Calculating your need for life insurance is where our guidance, along with an insurance professional, can begin to provide you with answers, as determining the amount of coverage that is needed is difficult. Then, once the cost of insurance premiums are obtained, we would work with you to see what is an appropriate balance of insurance coverage and premium cost that could fit into your family’s budget.

Beyond determining how much life insurance you and your family may need, and then the cost of insurance, there are many types of life insurance. To keep things simple, let’s focus on the two major types of life insurance….term and permanent (whole life) life insurance policies.

Term life insurance policies provide insurance for a certain period of time and the premium paid into the policy provides a death benefit to your beneficiaries if you pass away during that stated term. Most common is a renewable term policy, for a certain period of time, say 20 years. With such a policy, you pay the same premium every year, and any health changes in your life do not impact the premiums, as long as you pay the annual premium on time each year. Term life insurance policies are generally more affordable than whole life policies because the insurance is only for the specified term. Term policies usually do not cover you late in life and there are no other features, such as investment aspects of these policies.

Term policies are generally best for younger people, as the cost is less and more insurance can be obtained. These policies are best to cover you and your family into your 50s and 60s, as your children may become independent and you build your family savings. However, the cost of term insurance, especially if the premium is not fixed, can become prohibitively expensive as you get older, certainly beyond 70-80 years old.

Permanent life insurance policies can be useful when you want to provide coverage for later in your life, well past your 60s. There are many types of permanent life insurance, such as Whole life, Universal and Variable Universal life insurance, each which can have many different and sometimes, complicated and/or expensive features.

Whole life insurance can provide coverage for up to a lifetime (a term that you need to verify within each policy, as the policy states an expiration age, such as age 95 or 100), if you stay current on your premium payments. Some whole life insurance policies build cash value or pay dividends during the life of the policy. You can borrow against the cash value, if needed. We would not advise this, unless you carefully weigh your alternatives, as if you do not pay the borrowed cash value back, your loved one(s) will get a reduced death benefit due to the unpaid loan, at the time of death.

In general, we feel that insurance policies should provide you with insurance only, and not offer investment aspects, as the investment features of those types of policies can be quite expensive. Universal life insurance can offer flexible premiums and have the potential to build account value and Variable Universal life insurance can also offer flexible premiums, investment options and the potential to build account value.

As you consider various types of insurance policies, they can get quite complicated. We recommend that you consult with a licensed life insurance advisor, who can help you navigate which life insurance policy and company you should use, review with you which life insurance policy you should consider and help you decide on the amount of coverage that works best for you and your family.

We are independent investment advisors, meaning we are not compensated by any investment firm. The insurance industry is quite different, as most life insurance professionals are paid by commissions for the products they sell. We recommend you consult with an independent insurance professional, who works with more than one company. That does not mean you should not talk with an insurance agent who only represents one company, but make sure that you talk with multiple agents or at least one independent insurance professional.

As part of the comprehensive financial planning that we provide to clients, we can provide you with a referral to an independent insurance planning firm that we have worked with, that has been vetted by our back-office firm. They can provide you with independent, expert analysis and advice, as well as work with us to coordinate the planning, decisions and process with you. We do not receive any compensation by working with them.

Together with this outside firm, we can help to guide you through the complex maze of life insurance policies and terminology.

In the past, life insurance was also a key part of estate planning, as many more families were subject to estate taxes. As the estate tax exemption is now over $11.4 million per person (almost $23 million for a couple), unless you have assets in excess of that amount, you would not have estate tax obligations and would not need life insurance for the liquidity that life insurance provided to pay for estate taxes, if the bulk of your assets were illiquid.

If you have older life insurance policies which you obtained many years ago, for estate tax or just general coverage purposes, please contact us if you would like this outside insurance firm to review your existing policies. This may be helpful if you have a policy with cash value or to confirm the age at which your policy may expire.

Life insurance can be another place to find financial comfort and security for your future. It can also be a very complicated area. While we are not experts, we are knowledgeable and can work with you and other experts to help you through this process.

Please contact Brad or Keith if you would like to further discuss life insurance related matters.

 

 

Different choices, same end goal

Blog post #394

What do you do to be healthy? 

Have you tried different diets?

Do you take vitamins or supplements?

Have you tried different workouts?

Do you use a coach, trainer, fitness tracker or attend a regular class? 

Have any of those led to greater success?

To stay healthy, there are so many different options and choices we can and need to make. There is not a “one size fits all” fitness category. As with investment choices, which can be overwhelming, not all fitness levels and activities are appropriate for each person. Every WWM firm member has their own way that we choose to exercise to maintain our idea of a healthy lifestyle, such as walking, intense exercise classes, running, lifting weights, yoga, play a sport and biking, to name a few.

Just like our health, there are many choices or decisions for your financial road map to retirement and beyond. You know or you may have an idea or a vision of when and what you want your retirement lifestyle to look like. To get there it takes planning and making many decisions. This is where a financial advisor, just like a fitness trainer or nutritionist, can be helpful. 

If you have a fitness or eating routine in place, sometimes you go off course. You stop exercising. You add a few pounds. Even though it is easy to “not get back on the bike,” we all know it is in our best interest to resume with our fitness routine or eating best practices, to stay healthy. It is the same with investing, as even if there is volatility in the stock market, it is best to just continue with your long-term investment plan. 

Similarly, like investing, real life sometimes gets in the way. Even though you have a plan, there can be small or large bumps in that plan. Unplanned job changes. Illness. Unexpected expenses. Stock market declines.

It’s our job as financial advisors to help you navigate through real world circumstances and to help you reach your individual and family retirement goals, which are different for every person. We want to listen, learn and help you develop an investment strategy to help you reach your goals. 

When you become a client, we put together an Investment Policy Statement (IPS) that allocates your current assets, while considering your expected future savings and retirement goals. It is our goal to meet with you on a regular basis to make sure your goals are in line with the Investment Policy Statement put in place when you first became a client. 

If your plans change, or other outside factors change, we review and possibly revise your plan by amending your Investment Policy Statement, to make sure your asset allocation is in line with your goals. These adjustments could be due to changes in your goals, where you want to live or when you want to retire. Changes could also be for financial reasons, if you need to take more risk or less risk, based on how the financial markets have performed over time and your projected life expectancy.

Your Investment Strategy should be as important as your health. We all want to be the best versions of ourselves. 

If you have concerns about your health, you may visit your preferred health care professional to get help. If you have financial concerns or need guidance regarding your investments and financial planning topics, why not reach out to your advisor.

If this makes sense to you, please contact us to schedule a conversation.  We want to learn more about you and your goals, and how we can help you reach them.

A Key to Financial Success

Blog post #393

It can seem easy to remain invested in stocks when they are increasing.

You likely don’t feel worried or stressed when your assets are increasing, when you are making money. 

Your real test occurs when financial markets are down…when you are losing money. 

As your advisor, some key information can be helpful to your financial success. 

We want to help you to have reasonable expectations of the stock market. 

If you have reasonable expectations of the stock market, in advance, both positive and negative, this should help you to be a better long term investor. 

The US stock market, as defined by the S&P 500 Index**, has delivered an average annual return of around 10% since 1926. 

While we recommend investing in a globally diversified stock portfolio, using the S&P 500 Index as a base for discussing the stock market in general is appropriate for purposes of this post, even though the Index consists of only US based large companies. 

How often has the S&P 500 Index’s annual returns actually delivered returns near 10%? Actually, quite infrequently. 

The results are surprising! In Exhibit 1 below, there is a shaded band which represents the 10% historical average, plus or minus 2%. Thus, the band represents annual returns between 8-12%. As Exhibit 1 below shows, the S&P 500 Index has had returns of between 8-12% in only 6 of the past 93 calendar years, between 1926-2018. 

In most years, the Index’s return was outside of the 8-12% range, often above or below by a wide margin, with no clear pattern or predictability. 

The Index was down in 24 of the 93 years. That is 26% of the years. That means that 74% of the years, or almost 3 of every 4 years, the Index has been positive. That should help you to remain invested when the down years do occur. 

This emphasizes the point that while investing in stocks comes with significant volatility, the downward fluctuations are temporary. You need to have the emotional ability to stick with your asset allocation to stocks during the down years, to reap the long term positive rewards which stocks have provided in the past and are expected to in the future. 

You can potentially increase your chances of having a positive financial outcome by maintaining a long term focus. As Exhibit 2 documents, the longer you invest, your odds of success improve. While positive performance is not guaranteed, the past evidence is very strong. 



This data is for 12 month rolling time periods, not calendar years, between 1926-2018. For example, the first period starts in January, 1926. The second period starts in February, 1926. 

As the chart shows…
* 95% of the 10 year rolling periods were positive
* 88% of the 5 year rolling periods were positive and
* 75% of the one year rolling periods were positive. 

What can help you endure the ups and downs of the stock market?

There are no easy or simple answers. We feel that working with an advisor that provides you with this type of data, and explanations, can be a valuable starting point. 

If you are aware of the range of potential outcomes of the stock market, it should help you to remain disciplined. In the long term, this can increase your odds of a successful financial experience. 

We want to help you to be prepared for stock market volatility, as no one knows when that will occur. 

We want to help you to react rationally, and not emotionally, to the stock market, so that you can focus on the long term and strive to reach your long term financial goals. 

We strive to provide you with clarity and guidance, so you can have a greater sense of financial security, comfort and success

If you are not a client, we would be pleased to talk with you.  Call or email us.

If you are a client and have friends or relatives that could benefit from this type of guidance which you have received, please let them know about our firm.  We would be pleased to help them as well.  You can start the conversation.

For more reading on this topic, see our prior blog post, “When Average is Not Average.”

Source: The Uncommon Average, White Paper published by Dimensional Fund Advisors, May 2019 

**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.


Changing Perspectives

Blog post #392

After my three-day learning group session ended with fellow advisors from across the country in Monterrey, California, I went for a walk before heading north towards the airport. 

As I walked along the jagged, rocky Pacific Coast, I came upon a group of people peering into the Pacific Ocean. 

I took the following picture…..as I was focused on the ocean waves crashing into the rocks. 

As I got closer to this gathering, it seemed like some of them had pretty extensive photography equipment. Some were talking, others just looking out. But I didn’t listen carefully enough. I took this next picture….still focusing on the water. I was looking for sea lions, but didn’t see any in the water. But I kept looking…..

Then I heard what the others were saying. I listened better. Then I realized my focus was wrong. I had the wrong perspective.

I was looking out too far. My focus was incorrect. 

Much closer to me, but not in the water, were many sea lions or sea otters warming themselves on the beach… not in the water. This is what the others were focused on, which I did not see at all. 

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As investors, you may sometimes be focused on the wrong thing. It is our role, as your guide and financial advisor, to help you to focus on the right things. We want you to have the proper perspective.

You may be focused on political concerns or that the US or other International economies may be slowing. 

However, we feel that it is vital to remain invested, as appropriate to your personal Investment Policy Statement (asset allocation plan). We feel that this discipline is important to help you reach your long term financial goals. We think this is the best perspective for your financial future. 

So while it may be true that the US or International economies may be slowing, with that perspective, you may not realize that US and globally diversified stock funds are up double digits for the year. 

Is your focus and perspective on the right things? Are you focusing on the long-term or what you can control?

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For the past 15 years, I have been privileged to be part of an incredible learning group. We started in 2005, with a core group of advisors who were willing to try something new and join a program led by a financial industry expert, for a significant fee. The group’s members and how it has been run has gradually changed and evolved over the years, but the focus has always been on learning from each other and from the many speakers we brought in.

These meetings and the discussions, and during regular calls between meetings, gave us new perspectives. It helped to make sure we were focused and had the right perspective….what were the best ways to serve and advise our clients. We wanted to keep current and exchange ideas, so we could be better for you, our clients. 

Since the very first session in the summer of 2005 in Santa Monica, CA, I have not missed what became an annual Spring meeting, as well as October sessions, and for the past few years, a few days in January. 

For a multitude of reasons, I will likely be part of a new learning group starting this fall.I have mixed emotions about this transition, as I have developed great personal relationships with the members of my group. However, many of these advisors are older than me and will become part of a group which will have a greater focus on issues related to their own retirement transitioning. Their perspective is different than mine, as I am not retiring anytime soon. 

As we discussed the group’s transition Monday morning, one member from Nashville stated “this is about business. It’s not personal.” And he is right. I need to do what is best for my clients, which is what we always strive to do. 

While I may miss some of these personal connections that I have made, I will surely develop new ones….and that is exciting and invigorating to me. It is an opportunity to learn and exchange ideas with a new group of outstanding advisors. 

And that is really the primary goal of these learning groups. My responsibility, focus and perspective is always to strive to be a better advisor, to continually learn and develop a better firm, so we can better serve, guide and advise you, our clients, as best as we can. 

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As I write this on the plane back from California Wednesday morning, I have many pages of notes, ideas and concepts. I look forward to digging deeper and implementing the ideas that were presented and discussed, which will benefit you, our valued clients. 

From the broadest perspective, I remain very confident in our long- term investment strategy. 

As I tighten the focus, our mission is to strive to provide each of you with an excellent financial experience, hopefully for your lifetime.

And we will have a far better chance of providing you with a successful financial experience by participating in these learning groups, as well as other ways to learn and strive to always get better. 

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If you have worked with other financial advisors, you may (or may not) realize that many of them likely do not participate in these types of learning experiences. Ours are not trips provided as a reward for selling a certain mutual fund or reaching some sales/commission target. 

If you have friends or relatives that could benefit from the advice and guidance which you have received, and from the dedication to continuous learning that we have, please let them know about our firm. We would be pleased to help them as well. You can start the conversation.