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.


Why Tax Planning Should Be a Key Component of Investing

Considering the tax consequences of your investments should be a key component of structuring your investment portfolio and investment strategy. Long term capital gains rates are half of ordinary income rates (20% versus 39.6%) for high income taxpayers. For those with married couples with incomes above $250,000 and individuals with incomes above $200,000, there is an additional “net investment income” tax of 3.8%, above the regular tax rates.

Here are some ways that good planning regarding your investments can save you taxes.

Where you put certain investments: Investments such as REITS (real estate investment trusts) and TIPS (Treasury Inflation Protected Securities) generate ordinary income. While REITS pay dividends, they are not treated like regular corporate dividends. They are specifically taxed at ordinary rates, which can be as high as 39.6%.

For investments such as these, we would try to place these investments into a tax deferred account, such as an IRA or a 401(k) plan. By doing this, you can get the benefit of the investment, while avoiding any tax until you withdraw the funds.

Use tax managed mutual funds: For stock investments, we recommend using mutual funds that make a concerted effort to reduce the tax impact of their investment holdings. A tax managed mutual fund manager will make, or delay, trades to reduce or minimize the taxable distributions of the fund. They will make trades specifically to recognize losses, which they can use to offset other trades made at a gain. They may also delay recognizing gains, to reduce taxable distributions.

For clients with taxable investment accounts, we strive to utilize these “tax managed” funds whenever possible. The objective of these funds is to deliver optimal returns, while at the same time being very conscious of the tax ramifications of their trading activity. Investors should review whether the mutual funds they own, or the money managers they use, focus on tax management for their taxable investment accounts.

Be aware of tax loss opportunities: Throughout the year, and not just in December, we monitor client accounts to determine if there are trading opportunities to recognize capital losses. Monitoring and being conscious of tax loss opportunities on a year-round basis is important, as an opportunity to sell an investment at a loss may be available early in the year, but if the investment recovers later in the year, the loss selling opportunity will have been missed.

This strategy is dependent on when an investment is purchased and subsequent market activities, but this is an important value-added service that an advisor should provide. The opportunities may not exist every year, but when they do, they can be important.

Monitor mutual funds for taxable distributions: As most mutual funds make their large taxable distributions in the latter part of the year, we closely monitor the projected distributions of the funds that we recommend. Depending on when an investment was originally purchased and the current value of the holding, we evaluate the impact of the projected distribution. If it makes sense and will save the client taxes, there are sometimes opportunities to sell more recent purchases of a fund prior to its taxable distribution.

Summary: An important benefit of our investment strategy and monitoring of our clients’ accounts are to minimize the tax impact of their investments. The above are examples of some of the strategies we utilize.

The key is that as an advisor, we actively take steps to minimize or reduce the tax impact of your investments, without sacrificing investment performance.

Are you, your advisor or a money manager used by your advisor taking steps to reduce the tax impact of your investments?


Our Investment Outlook

The world’s stock markets have been volatile this week. Prices have risen one day, then declined the next. What do we think?

Perspective is key. Stock market activity should be viewed in a broader perspective of actual data, not in the emotion of daily (or even hourly) stock market moves.

One of the purposes of writing this weekly blog is to provide our thoughts and guidance to you, our clients and prospects. It is also helpful to us, to step back and think. The process of writing entails thinking through things in a more deliberative and thoughtful manner.

Has the world changed dramatically in the past week or two?

To us, clearly the answer is no. Are greater concerns being expressed about the European economy? Yes. But we do not see that economic fundamentals have changed in a significant manner in recent weeks.

What causes the stock market to increase or decrease?

There are various answers to this question. In the short run, the stock market often moves on emotion, and sometimes overreacts, both up and down.

In the longer term, which is our main focus, corporate earnings drive stock prices. When corporate earnings and economics improve, stock prices go up.   When companies or economies decline, the stock trends are usually down.

We take an optimistic, but realistic view that companies and economies adapt to changing conditions. Thus, in the long term, a globally diversified portfolio will be the proper place to benefit from long term growth in corporate earnings and societal advancements.

What is the real economic data that should be considered today?

Rather than focus on media headlines and stock market forecasters, let’s review some specific information. It will help to give you perspective and reassurance to properly handle the short term volatility of the stock market.

 Interest rates are still very low, and have declined further in the past few weeks. Most forecasters, including the US Federal Reserve, are predicting rising interest rates over the next few years. However, just the opposite has occurred since the last Fed meeting two weeks ago.

    • The 10 year US Treasury bill has declined from around 2.5% to around 2.3% in past weeks (and from 3% in early 2014).
    • Lower interest rates will cause corporate earnings to increase, as they can continue to borrow and finance their businesses with lower cost debt.
    • Lower interest rates will benefit consumers. Home mortgages and home equity loans interest rates will be less, which will help the housing market. Buying a car will be more affordable.

The price per barrel of oil has declined dramatically in recent months and in the past two weeks, from around $100 per barrel earlier this year to around $85 per barrel now.

    • Cheaper gas means more money in consumers’ pockets, which means people have more to spend on other things. This is good for the economy.
    • Cheaper gas helps all kinds of industries and will help corporate earnings.
      • Shipping products and raw materials will cost less. Manufacturing costs will be reduced. Companies as diverse as delivery companies, airlines, automakers and food producers all benefit.

Job growth continues to be positive.

    • The US economy added 248,000 jobs in September 2014. The average monthly gain in employment was 213,000 over the previous 12 months. (per the US Bureau of Labor and Statistics

US Housing starts have greatly improved over the past few years. Residential home construction has a major impact on the economy, in terms of employment and consumer spending. Improvement in housing is a reflection of confidence in the future of the economy.

  • In the 6 months ending August 31, 2014, the US averaged 996,500 new homes starts per month.
  • In 2011, the monthly average was 613,000 housing starts.
  • In 2013, the monthly average was 930,000 housing starts.


We are not providing short term guidance on the direction of the US or worldwide stock markets. If Warren Buffett can’t do this, we can’t either. However, Warren Buffett is buying businesses and based on recent interviews, it is reasonable to assume that he and his company are buying stocks with each market downturn. He views these as buying opportunities.

With a long term view and the right perspective, we encourage you to have confidence in a long term investment plan. If you have the proper allocation to stocks and the appropriate time frame, you should not allow short term stock market moves to cause you to change your long term focus.

10 Things We Are Not Sorry About

This is a time of the year when some people are reflective and consider actions for which they are sorry about. While we are certainly not perfect, we as a firm have philosophies and principles for which we are NOT sorry.

 1.   We are not sorry that we always act in our clients’ best interest.

2.   We are not sorry that we have a consistent and disciplined investment strategy, which is logical, understandable and has worked over the long-term.

3.  We are not sorry that we do not recommend hedge funds. They are very expensive, not transparent and generally do not have good track records at beating their respective benchmarks.

 4.  We are not sorry that we review our clients’ accounts throughout the year for rebalancing and tax loss harvesting opportunities. We are not sorry that we don’t do these things only at the end of the year.

5.  We are not sorry that we continually strive to minimize our clients’ taxes, by utilizing tax-managed stock funds when possible and by placing certain funds that tend to generate more taxable income or ordinary dividends, like real estate funds, into tax deferred accounts (like IRAs).

6.  We are not sorry that we recommend very low cost investments, while not giving up performance.

7.  We are not sorry that we are fee-only advisors. We are not sorry that we do not recommend mutual funds with either front or back end fees.

8.  We are not sorry that we are skilled in estate planning concepts, so we can have important planning discussions with our clients that extend beyond just investment planning and advice.

9.  We are not sorry that we do not try to time the stock market, as we think this is an impossible thing to do successfully over a long period of time.

10.  We are not sorry that we are continual learners, voracious readers and invest in ourselves. We spend significant time talking and meeting with peer advisors, as well as attend investment and other types of conferences and seminars, so that we can be more knowledgeable and better advisors.