One Small Act and A Great DVD (and more)

Sometimes small acts can have a huge impact. We never know what tomorrow will bring… or will lead to.

I have read Jason Womack’s blog for many years. He is an executive coach based in California and works with people and organizations to improve their productivity. (See his blog at After I sent him an email, thanking him for one of his blog post’s which really hit home, he sent me a complimentary copy of his DVD, Making Things Possible, 15 Tips for Time Management.

A colleague once told me, if you attend a seminar and get one good idea, then it was worth attending. With Jason, he packs way more than one good idea into this DVD. Almost every idea is applicable to your work and personal life, or leads you to think how you could take his concepts and apply them in another manner. His recommendations on handling emails and Outlook are particularly helpful.

I highly recommend the DVD, though it was produced a few years ago, and thus is not completely current (for example, it is pre-iPhone and apps). Jason’s enthusiasm for life and lessons on goal setting and personal productivity are worth pursuing and learning from. You can read his website and blog, get the DVD or other materials and programs that he has developed, as well as follow him on Twitter.

Jason has motivated and inspired me (and we have never even talked or met). Just because I took a few minutes and sent him an email thank you note, and he responded by thanking me with a DVD, a number of positive things have occurred. I should also mention that he sent me a thank you note, via traditional mail, as a thanks just for my initial email to him. That alone had an impact!

There is more than one lesson, and a worthwhile DVD, here.

One small act, on each of our parts, has led to much greater things. Something to consider….

For more information about Jason Womack, see As noted above, as full disclosure, I received the DVD on a complimentary basis.

More Evidence of Why Diversification Matters

One of the differentiators of our firm, is how we truly diversify our clients’ portfolios. Many investors feel they are diversified, but upon a detailed review, we show them that they are not truly diversified, as we define this concept.

Further evidence of the benefits of such diversification were provided over the past 10 years. As stated in a WSJ article, “stock returns calculated off the broad-based indexes have been horrendous over the last decade.” They are referring to a portfolio that was made up of mostly large US companies, such as would be found in the S & P 500.

“Those who bought value stocks during the tech bubble… have done much better. From December 1999 through July 2010, the Russell 3000 Value Index returned 35% cumulatively, while the Russell 3000 index of all stocks still showed a loss.”

When we structure a portfolio, we emphasize value stocks and broad global diversification. In the long run, this should provide our clients with a more successful investing experience.

Are you truly diversified? Do you know?

Source: “The Great American Bond Bubble,” The Wall Street Journal, August 18, 2010

The Great American Bond Bubble

This is the headline of a Wall Street Journal opinion article published on August 18, 2010, which echoes a theme that I have written about on numerous occasions.

The opinion column compares the current bond market to the technology stock market bubble that was experienced 10 years ago. The authors state: “a similar bubble is expanding today that may have far more serious consequences for investors.”

As interest rates have dropped to historic lows, investors in bond funds, or those who do not hold their bonds until maturity, will face significant losses, if and when interest rates rise. ” Those who are now crowding into bonds and bond funds are courting disaster… the possibility of substantial capital losses on bonds loom large… if interest rates rise to 4% (on a 10-year bond, which is currently at 2.8%), the capital loss will be more than three times the current yield.” That would mean that an investor would lose over 8.5% of their capital, for what was intended to be a safe investment.

We have recommended numerous times in this blog, that a fixed income portfolio is an important foundation of a client’s overall portfolio. We feel that a fixed income portfolio should generally be holding short-term individual securities, of a very high credit rating or FDIC insured.

The Investment Company Institute reports that from January, 2008 through June, 2010, outflows from stock funds totaled $232 billion, while bond funds have seen tremendous inflows, of $559 billion. Investors have reacted in this manner, as a flight to safety. However, we feel that these same investors will, at some point in the next number of years, be incurring huge losses that they currently do not foresee and do not understand.

In our role as an adviser, our goal is to provide clarity and insights, so that our clients will have a greater sense of security. While we cannot predict exactly when interest rates will rise, we do know that how we are structuring our clients fixed income portfolios are properly anticipating an eventual increase in interest rates. Our clients should not incur the tremendous losses that the authors of this article are forecasting.

If you are not currently a client of our firm, we would be pleased to review your fixed income portfolio, to see if this very serious issue applies to your situation. Please contact us to discuss this further.

Source: “The Great American Bond Bubble,” Wall Street Journal, August 18, 2010

What do the Bank Overdraft Notices and Requests You are Receiving From Your Bank Really Mean

Consumers are being flooded with notifications from their banks, due to new banking regulations that take effect on August 15, 2010.

Simple explanation: Ignore all of it! Don’t do anything and do not sign up for the overdraft coverage that your bank may be offering.

Now the details:

The new rules apply to the use of ATM and debit cards, when being used for purchases. If you don’t use a debit card or ATM card for purchases, none of these changes will affect you and you can ignore the emails and notices that you have been receiving.

If you do use an ATM or debit card for purchases, we’ll explain the new rules. The key is to maintain adequate balances in your bank account and not to incur an overdraft, as the fees are ridiculously high (ranging from $25-$35 per transaction). As of August 15, banks will no longer be able to approve a debit card “overdraft,” without your consent (that is what they are contacting you for, your consent for their new overdraft program).

What this means is that if you don’t accept the offer they are requesting you to “opt-in” for, your debit card will be rejected when you attempt to make your store purchase, if your bank account does not have adequate funds.

What the banks are sending to their customers now is to request that you opt-in for the new overdraft rules. If you opt-in, they have the discretion (not guaranteed) to approve your store purchase, even though you may not have adequate funds in your bank account. By opting in, they may approve the transaction and then charge a fee, which could be $25-$35, per transaction, per day. There are ways these fees quickly escalate every day, unless additional funds are quickly added to the bank account.

We strongly recommend that you DO NOT opt in for the new ATM/debit card overdraft coverage (by doing nothing, you are effectively doing exactly this). If you do not have adequate funds in your bank account when you are attempting to make a store purchase with your debit card, you are far better off to have the transaction rejected, and then pay by some other form, then have the transaction approved and incur the bank fee. The initial fee (and subsequent fees that can accumulate) are likely to be much larger than the amount of the intended purchase.

We recommend that readers review this with their children and grandchildren, who may be frequent debit/ATM card users, for purchases. They may be more likely to use these cards, and more likely to opt-in, based on their bank’s marketing materials.

Source: FDIC website and Consumer Federation of America press release, dated 6/29/10

Why is a Diamond Getting Roughed Up?

On Friday, August 6th, Congress failed to approve 3 appointments by President Obama to the Federal Reserve. This is important, and noteworthy, as the Federal Reserve is to have 7 members. They currently only have 5 members and another member’s term is to expire on September 1.

This blog is not intended to be political in nature. Its purpose is to help to clarify and inform its readers of important financial and newsworthy events, which we feel this is. Thus, the purpose of this post is to explain why we feel the action, particularly by Senator Shelby of Alabama, was incorrect.

Due to Alabama Senator Richard Shelby, Peter Diamond’s nomination was rejected and President Obama will need to be re-submit his nomination, if President Obama chooses to do so. Shelby stated that while Diamond is a “skilled economist,” he is not yet ready to be appointed or not qualified to make monetary policy decisions. This is the same Senator Shelby that was against any financial assistance for the automobile industry.

Senator’s Shelby’s comments are very disturbing. A quick review of Diamond’s background indicates that he is an exemplary economist and has headed many major economic organizations/associations. But more importantly, the 70 year old MIT economist’s areas of expertise are the study of the Social Security system and the long term effects of structural unemployment. Both of these topics are critically important to our country today. Additionally, as a Federal Reserve member, he would have the ability to guide the national discussion and awareness of issues, through speeches and writings. Diamond’s expertise and knowledge should be even more important than ever.

The leaders of the Federal Reserve should be a broad and diverse group of financial and economic experts, who would work together and share thoughts, for the betterment of our country and society. The country faces major challenges in dealing with both the Social Security system, as well as structural unemployment. Just as I posted a while ago that we are fortunate that Fed Chairman Bernanke’s expertise was in dealing with the causes of the Great Depression, Mr. Diamond’s skills would be a valuable addition to the Federal Reserve.

As importantly, it is vital that Congress act so that the Federal Reserve positions are filled as fast as possible with very competent individuals. Now is not the time for the Federal Reserve to be “understaffed.” We need the wisest minds working together to help guide our economy.

Harvard’s Hard Lesson

It was reported in the Wall Street Journal today that Harvard University’s endowment fund may be selling it’s stake in 6 US focused real-estate funds for $500 million. According to the article, Harvard is under pressure to take this action, as the endowment fund does not have adequate cash to meet its obligations. The real estate portfolio lost 50% of it’s value in the year that ended June 30, 2009.

To me, this is shocking. Harvard and certain other major universities have been acclaimed in the past decade for their aggressive positions in non-traditional investments and illiquid assets. Thus, they took great risk, with the goal of getting higher returns. However, they did not consider the downside risk of purchasing illiquid assets, which might be hard to sell. One would think that an institution such as Harvard, which has a huge endowment staff, would not make such a basic mistake. They did not anticipate the downside of their strategy and did not provide for adequate cash reserves.

For our clients, this is another reason why we have avoided hedge funds and other investments, which do not provide transparency and liquidity. We want to understand what we are investing in. We invest in mutual funds which can be sold and provide liquidity within days. Unlike Harvard, we have not invested in funds which require monies to be tied up for years, which could then result in liquidity problems.

To provide a sense of security, we plan upfront with our clients, to provide for adequate fixed income investments (we refer to this as the “foundation”), so that we are not forced to sell stock investments to generate cash, at fire sale prices.