The Only Financial Resolution You Need to Make

As I considered an essay to conclude 2014 and begin 2015, a few concepts kept recurring:

  • The importance of having a consistent philosophy.Carl Richards - Focus-thingsthatmatter
  • The value of being consistent.
  • Focusing on things that matter and things that you can control.

The past year has again shown that our consistent investment philosophy is strongly holding up to the long term test of time. We structure client portfolios to be very diversified by utilizing stock funds which are very low-cost, tax-efficient and which have excellent track records, due to their consistent methodologies.

By being globally diversified across many industries and countries, as a matter of philosophy, we do not place huge bets on individual companies, the direction of interest rates, or specific commodities, like the price of oil or gold. We have been very consistent that an approach like that, to make significant predictions and investment bets, is not in our clients’ best interest. That type of investing will not help you reach your goals or sleep well at night.

Most financial “experts” and economists were again totally wrong with their 2014 financial predictions. According to a Wall Street Journal article* recapping their annual economic forecasting survey, the average forecasts of the 49 economists (from major Wall Street firms, academia and other institutions surveyed) were way off on most of their predictions. Here are some of the most important items, as predicted in early January 2014, for 12/31/14:

  • Interest rates, defined as the 10 year US Treasury yield:
    • Prediction: 3.52%
    • Actual: 2.17%
  • Crude oil per barrel:
    • Prediction: $94.65
    • Actual: $52.96 (as of mid-day on 12/31/14)
  • Payroll Growth:
    • Prediction: 200,000 average monthly change over 12 months
    • Actual: 241,000 through November, 2014, 11 months

If you or another financial advisor had made investment decisions based on this guidance, it would not have helped you. These top economists at were not able to accurately predict the future. One of our core beliefs is that we cannot predict the future, which we have often stated to clients and prospects, as well as in these blog posts. That is an important component of our consistent investment strategy, because we do not believe anyone can consistently predict the future over a long period of time.

Relying on predictions and financial guesses is not going to be a winning strategy.

So as 2015 begins, we hope your financial resolution is to be consistent, and to focus on the things which both matter and which you can control. If you do have things in your life which need your attention, which do matter and you can control, we hope you take action on them.

We strive to do this for our clients, our firm, as well as ourselves. What the Economic Forecasters Got Right – and Wrong – in 2014 (12/31/2014)

2014 Book Recommendations

Wonder, by R.J. Palacio is a young adult book I have been reading with my daughter. It is a terrific novel which tells a middle school boy’s experiences with a severe facial deformity, through the voices of many characters. I highly recommend this for adults and children.

The Ghost of My Father, by Scott Berkun, is an intensely personal book. The author shares his family’s relationship experiences to explore the impact his father’s actions caused. This book has caused me to really consider the effect of relationships and memories of past experiences.BW books

Essentialism by Greg McKeown and The One Thing by Gary Keller emphasize doing less is more, and how to strive towards that. Essentialism is one of my favorites of the year. The 100/0 Principle by Al Ritter focuses on business and personal relationships.

What the Dog Saw by Malcolm Gladwell prompted me to read a number of his books this year. I also read David and Goliath, and Outliers. See my blog post on parts of David and Goliath. Gladwell will get you thinking.

Ari Weinzweig, one of the co-founders of the Zingerman’s Community of Businesses had a profound impact on me this year. I read all three of his business/leadership books and will do so many times again in the future. I highly recommend Building a Great Business, Being a Better Leader and Managing Ourselves (this book is for anyone, even if you are not in business).

Jason Womack’s Your Best Just Got Better is an invaluable read on improving yourself. I highly recommend his weekly podcast of the same name (full disclosure: the podcast is produced by my son, Scott, and Jason is my executive coach and has become a wonderful friend).

Seth Godin has just published a wonderful book, What To Do When It’s Your Turn, which is another in his theme of getting motivated, doing and taking chances. I also read two of Steven Pressfield’s books of a similar nature and highly recommend The War of Art, if you want motivation to break down any form of resistance, to start a business, exercising, writing or dieting.


Thank you for your loyalty to our firm, which we greatly appreciate. Thank you for the tremendous support in reading these blog posts, which I committed to writing weekly in June of this year. It has been a great experience, which I hope you have enjoyed and learned from, as I have.

Best wishes for Happy Holidays, a happy, healthy and successful 2015!


How Unexpected Events Can Be Positive (Oil Part II)

The unexpected has occurred. The price of oil has plummeted, far lower than anyone thought possible, in a very quick time.

The stock market has reacted in a volatile manner to the movements of the price of oil. This may continue, as the stock market digests the lower price of oil and its various implications.

The price of oil, at around $56 per barrel, will provide winners and losers, both domestically and internationally.

The significant drop in the price of oil (and thus, gasoline), and a reactive decline in US interest rates, are positive developments. In the long run, this will be reflected by global stock markets.

We believe the best long-term strategy to benefit from these developments is to be globally diversified, patient and accept that there will be volatility.

We cannot predict the ups and downs that will occur in the future. At some point, maybe just as suddenly, oil and gas prices will increase. We cannot control this. However, we can provide good planning and a sound investment strategy, so you can reach your financial goals. Carl Richards - current-reality-goal

What Plunging Oil Prices Mean

Over the past months, oil prices have steadily declined, dropping below $60 per barrel on Thursday for the first time in over 5 years. This has resulted in a gasoline prices declining from nearly $4 per gallon in mid-summer to approximately $2.60 per gallon. What does this mean? What are the implications of this sudden change?

How much has the price of oil declined?

Oil prices have declined over 45% in nearly six months.

  • During the summer of 2014, oil traded in a range of $90-110 per barrel.
  • In early October, the price per barrel was $90.
  • On November 5th, oil traded around $80 per barrel.
  • On December 5th, oil traded around $66 per barrel.
  • On Thursday, December 11th, oil closed at $59.95 per barrel.

What has caused this decline in oil prices and how long will it last?

Oil prices, as a commodity, fluctuate based on supply and demand, as well as political and economic factors. Financial traders also can significantly affect prices, and may even exacerbate the price swings.

The recent price decline has most likely been caused by a huge rise in US oil production over the past few years, as well as a decrease in worldwide demand for oil. The US has been steadily producing more oil in recent years, due to shale and fracking innovations. While supply has increased, OPEC nations have not reduced their production.

In the past week, the further price declines were caused by new information. US data released on Wednesday showed that US oil supplies rose far above predicted amounts (oil inventory levels), while US production increased to its highest level in decades.

The future direction of the price of oil is very difficult to predict, as is any commodity or stock. There would have been few, if any, economists or oil analysts who would have predicted oil prices at these levels at the beginning of 2014. We doubt that few would have predicted prices below $60 per barrel of oil even a month or two ago. The pace and extent of the price decline is an unexpected event which could not have been anticipated or accurately predicted.

We cannot predict the future price of oil. However, we do know that we can learn from the past, which teaches us that oil prices tend to move dramatically, both up and down, and often quickly and unpredictably.

According to some reports, the current global production of oil is greater than demand by as much as a million barrels of oil per day. Saudi Arabia and other OPEC nations have not indicated that they will cut their production, as they need the revenue. In the short term, US oil production will likely remain the same or increase over the next year. If oil prices remain low, it appears that oil companies will eventually cut back on new project investments, which could reduce future production. This may take time to occur and impact future supply levels, and then, future oil and gasoline prices.

What are the investment lessons?

The sudden decline in the price of oil and gasoline confirms our belief that relying on predictions to make investment decisions is not a valid strategy. Unexpected events can and will occur.

The market impact of the sudden decline in oil prices confirms our philosophy of being well diversified across many companies, industries and countries throughout the world. By being very broadly diversified, our clients will not be dramatically affected by companies, industry sectors or countries which may be adversely impacted by these events.

Yes, our clients will feel the impact of the decline in oil stocks which are held in portfolios, but these may be offset by other companies which benefit from the price decline. More importantly, we do not make huge bets on specific stocks or sectors like energy, so while an oil company stock may have declined 20-40%, the impact of this on our client portfolios will be muted.

Beyond stock prices, there is now growing concern in the junk bond market about the ability of many energy production companies to repay debt which they have issued in recent years, under the assumption of much higher production prices. We have a policy of only buying very high quality debt on behalf of our clients. This risk-reward tradeoff is the proper philosophy.

Another major lesson:

During the depths of the financial crisis of 2008-09 and in subsequent years, I have stressed the resiliency of companies and countries to innovate and develop new technologies. This is a major influence on our long term positive view of the world and financial markets. While cognizant of problems throughout the world, the impact of the new innovations, like fracking, will now benefit many individuals and companies in the form of much lower gas prices, which will positively impact the economy.


“U.S. Oil Prices Drop Below $60,” 12/11/2014, online,

“Capital Journal,” WSJ, 12/9/14

“Plunging Oil Prices Won’t Dent Supply in Short Term”, WSJ, 12/12/14

Why We Should All Be Thankful … and Have Won the Lottery

My wealth has come from a combination of living in America, some lucky genes, and compound interest. Both my children and I won what I call the ovarian lottery. (For starters, the odds against my 1930 birth taking place in the U.S. were at least 30 to 1.)…

~ Warren Buffett, From his “Giving Pledge” Speech, 2010

Buffett has often cited what he calls “winning the ovarian lottery,” which he feels Americans win the day they are born in the US. In lengthier speeches on the same topic, he cites the many aspects of your life which are determined at birth: the political and economic system you are born into, your health, sex, skin color and your level of intelligence.

While our country is certainly not perfect, we are thankful for its many virtues and the opportunities it has provided to so many of us. On this Thanksgiving Day, we hope you appreciate the good fortune that so many of us have, simply by being born in the US.


We are truly thankful to our clients, who have placed their trust in our firm.

We are very thankful for the referrals that our clients and friends have made on our behalf to their friends and relatives.

We are thankful for the clients who have requested our advice and counsel in projects beyond investing and financial planning, such as helping them with their estate planning, review of insurance and the sale of businesses.

We wish all of you a very Happy Thanksgiving, which is shared with those who are most important to you.


Social Security Basics: What you Should Know

Social Security benefits are important. The amount you may collect from Social Security could be $15-30,000+ annually and lifetime benefits for a couple may be more than $1 million. That is significant.

How are Social Security benefits determined?

Benefits are determined by a formula, based on your highest 35 years of earnings. To be eligible for Social Security retirement benefits, you must be at least 62 and have earned at least 40 work credits during your lifetime.

If you have worked full time during your working life, you will have no problem meeting the work credit minimum. Work credits are earned at a maximum of 4 credits per year. Currently, you would earn the 4 credits with earned income of at least $4,800 in a year. Thus, you would need to earn at least $4,800 per year for 10 years, under current standards, to be eligible to collect retirement benefits.

As an example, if you always earned the maximum social security earnings amount (which for 2014 was $117,000) and retired in 2014 at age 65, you would receive $2,431 per month, or $29,172 for the year.

Planning tip: If you have not been in the workplace for a while, you may want to consider working part time for a number of years and earn at least $5,000 or more, to become eligible for benefits.

If you are married and your spouse is a consultant or owns his or her own business, and you provide services to the business, it would make sense to pay some wages/earnings to the second spouse, to gain Social Security credits.

When are you eligible to receive Social Security benefits?

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 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.

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 FYA 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.

However, if you work while you are under your Full Retirement Age, any earnings between $15,480 and $51,480 will cause your benefits to be gradually reduced. For example, if you are 64 (under the FRA of age 66) and receiving Social Security, you can earn up to $15,480 and your benefits will not be reduced. You would need to earn more than $51,480 for all of your benefits to be stopped.

Once you reach your FRA, you can work and your Social Security benefits will not be reduced or affected at all, no matter how much you earn.

Annual Changes to Social Security benefits and paying into SS

Each year, Social Security benefits are revised, based on the rate of inflation. For 2015, monthly benefits will increase 1.7%. Due to very low inflation, annual increases have averaged 1.4% a year since 2010, which is half the 3% average annual increases during the preceding decade.

The maximum amount of earnings subject to the Social Security tax will be $118,500 in 2015, an increase from $117,000 in 2014. As an employee, you would pay in 6.2% of your wages, up to the wage limit. If you are a consultant or self-employed, the self-employment tax rate is 12.4%, up to the wage limit.

What should you be doing now?

If you have not yet started collecting Social Security, you should be reviewing your Social Security information and future benefit projections. You should verify that the earnings data on record is accurate. You should review this information with your financial advisor.

Social Security stopped sending everyone annual paper statements a few years ago. To review your data online, go to: to establish your own Social Security account. Each individual needs to do this, it cannot be done as a couple. You will need to create a user name and password. Their password requirements are very strong, which is good. Be sure to save it, and they require you to establish a new password every 6 months.

Social Security may resume sending paper statements every five years, when you turn 40, 45, 50, for example. Statements are sent annually to those over 60, until you file for Social Security benefits. However, we recommend you establish and review your account online, at least annually.

If you have not worked for a long time, you should consider the long term financial benefit of working part time, or the potential impact additional earnings could have on your Social Security benefits. As life expectancies increase significantly, the amount of your Social Security benefits should not be underestimated.

Other matters

This post has covered many details of Social Security, but there are many exceptions. We hope this post is helpful, but please consider this as general information. We encourage you to consult with us, based on your specific situation, prior to making any decisions related to Social Security.

Annual Reminder: How to Verify Your Credit Information

At least annually, you should verify the credit information which is maintained by various credit reporting agencies. If you are married, each person should do this individually.

This is free, relatively simple and only takes 10 minutes to do.

The main website to obtain free credit information is: This site, governed by the Federal Trade Commission (FTC), will provide you with a link to get your credit report and you will need to answer a number of personal questions, for identification purposes. You may also call 877-322-8228.

This free credit report is not your “credit score.” It is the supporting information that the credit reporting agencies use to determine your credit score.

The Fair Credit Reporting Act guarantees access to your credit report information from each of the three credit reporting companies, once per year, for free. The best and only way to ensure that you are getting this information for free is to use this website,

Steps to follow:

  • Go to the website:
  • Click on the red button: Request your free credit reports
  • The next page says: 3 steps to your free credit reports….need to again click on the red button at the bottom: request your credit reports
  • Submit your personal information
  • Select 1 of the 3 credit reporting agencies, click Next
  • Confirm the data by the reporting agency, click Continue
  • Answer a number of questions that are used to identify yourself , such as what street you have lived at or when was the last time you applied for a certain loan
  • The report is then provided. You can ignore the “Get Your Score” box, unless you want to pay for the credit score.
  • You should print the report.

You should do this from a secure computer, from which you can print the report. You should not do this from a public computer, or somewhere like a restaurant, mall or hotel.

The 3 major credit reporting agencies are Experian, Equifax and TransUnion. Using the above website, you are entitled to one report from each company every 12 months. You can obtain a free report from all three at one time, or order them one at a time during a 12 month period. If you want to be very diligent, we recommend requesting your free credit report information from each of the 3 companies at different times during the year, not all 3 at once.

You should review the information obtained, and inform the agencies if you note any errors. You should check to see if there are any credit cards or loans that are incorrect and that other data is accurate.

There are many companies that offer credit reporting and monitoring services. With the increase in credit card security breaches, these services may be worthwhile, but they come with a cost. For a monthly fee, you usually get monitoring, alerts and each service’s version of your credit score (which will vary in name and the score, based on the provider).

There are companies and services that may offer your actual credit score for free. One reliable source is the Discover It credit card, which provides your FICO credit score for free on each month’s credit card statement.

If you have any questions about these matters, please contact our office. We are always striving to provide you and your family with financial security.

The Investment Evidence is Compelling

How compelling does the evidence need to be, for you to act upon it?

Through the 5 years ending June 30, 2014, 87% of large-cap stock fund managers under-performed their benchmark, the S&P 500.**

Through the 5 years ending June 30, 2014, 74% of US stock fund managers under-performed their respective benchmarks.

The same trend follows for international stock fund managers. 70% of international stock fund managers failed to beat their benchmarks and 68% of emerging markets stock fund managers under-performed their benchmarks, over the same 5 year period.

Do you know how your mutual funds have performed versus their benchmarks over the last five years?

What does this evidence tell you?

This is more convincing evidence that our investment philosophy is the best long term approach for an overall successful investment experience.

What is our approach?  We believe in following the evidence, the academic research and information such as above. This means that in general, we do not recommend using active stock managers. By “active” managers, this means money managers and stock funds that do research and try to pick which stocks will do the best.

The evidence shows that most active managers under-perform their benchmarks over long time periods. The reasons may vary, such as their inability to consistently make correct picks over a long time period and their expenses and trading costs are too high.

We follow a different approach. We generally use a variation of indexing, called passive or evidence-based investing. If the “passive” funds we recommend beat or equal their benchmarks over time, our clients will be ahead of most “active” money managers. If the vast majority of active investment managers cannot outperform their respective benchmarks, then our strategy is logical and makes sense.

“Active management has never been in worse repute. This is the darkest of days,” says John Rekenthaler, vice-president of research at Morningstar, an independent evaluator of mutual funds.

This evidence should give our clients further confidence in our long term stock investment strategy.  Since we began as a firm, we have adhered to the principle of being globally diversified by recommending very low cost, passively managed mutual funds. We do not plan to change this philosophy, as long as the very strong evidence supports it.


** Data from WSJ, 11/4/2104, from S&P Dow Jones Indices, Article: “Investors Flee Active Stock Managers”

How long will an average 65 year old American live?

In a study released Monday, the average 65 year old American is expected to live at least 2 years longer than the average 65 year old American did in the year 2000.

The average 65 year old American woman is expected to live to 88.8 years, which is an increase of over 2 1/2 years from 86.4 years, based on the year 2000 study.

The average 65 year old American man is expected to live to 86.4 years, which is an increase of almost 2 years from 84.6 years, based on the year 2000 study.

What are some of the implication of this study?

Average is a key word. Life expectancy statistics mean that half the people will live longer and half the people will live shorter than the published figure. This means that half of the women who are 65 now are expected to live beyond 89, most into their 90s.

If you are well educated, have access to good health care and are a non-smoker, you would be expected to exceed these life expectancy figures. While we all know many people who unfortunately did not live into their 80s, you should be prepared emotionally and financially to live into your 90s.

Are you planning for a financial life into your 90s?

The increase in life expectancy over the past decade is dramatic. Since the 2000 study, life expectancy has increased 10.4% for men and 11.3% for women aged 65 today. This trend will likely increase. The study indicates that it is now becoming more statistically relevant to live past 100. It is becoming less of a rarity.

It is obvious that with better health care, people are living longer. You will need your money to last a long time.

You will need to make good decisions throughout your life and have good financial advice, so you will not outlive your financial assets.

Note: I actually read/skimmed the 76 page report prepared by the Society of Actuaries. (This was a first for me and I dont highly recommend it). The purpose of this report was to update their last study, published in 2000, to provide information to large pension funds to guide their investment obligations. The conclusion of this study is that large pension plans, many of which are already underfunded, will need to increase their pension plan contributions, as their liabilities may be 4-8% higher than they are currently anticipating.

Investment Outlook, October Part II

Two weeks ago, I wrote an Investment Outlook blog post, commenting on the stock market volatility that occurred in the week prior to October 10th. That has continued, first going down, and then going up.

This month has provided lessons that investors can learn from. By learning from the past 4 weeks, you will most likely have a better lifetime of investing.

Ignore the daily and weekly fluctuations:

The more that you focus on the long-term, and less on the day-to-day movements of the stock market, the better off you will be.

A month ago, the S&P 500 was at 1,966.

Yesterday, it closed at 1,951.

Hardly any change, right? The markets appear to be calm, when viewed as 4 weeks.

However, during these 4 weeks, the market had many volatile days.

The S&P 500 closed on October 16th, a week ago, at 1,863. This was a decline of 5.2% from September 25th.

Yesterday, it closed at 1,951, an increase of 4.7% in just 5 trading days.

The roller coaster of the last 4 weeks was typical of a great amusement park ride. It climbed up hills and went quickly down them….and finally coasted right back to where it started. It was fun and exhilarating and got us back to where we boarded the ride.

Ignore the media and market forecasters:

Reading the media or listening to the forecasters on networks such as CNBC can only confuse and worry you. Could any of them have accurately predicted what occurred over the past weeks? I doubt it.

For days, all you would hear is gloom and doom (that was probably in the few weeks leading up to last Thursday). Then, what changed so dramatically that “everyone’s” view of the world, the economy and corporate profits would all of a sudden be so much better? I’m not really sure.

This is why we don’t rely on predictions. We rely on academic data and evidence for our investment philosophy and strategy.

It is better to focus on what is really important:

As we advise our clients, you should focus on things that matter and things you can control.

For your investments, this means to focus on developing a globally diversified portfolio, with the appropriate allocation of stocks, cash and fixed income for your personal and family needs. Then have the discipline to stick to this investment plan, despite what the stock market roller coaster is doing.

There are many other important things you need to focus on, besides the daily activity of the stock market. For example, we have had many important conversations with clients throughout this year to help them resolve estate planning and other generational issues.

The more you can focus on the most important things in your life, and addressing them when needed, the better you will sleep at night.