An Extraordinary Guide

Imagine swimming 2.4 miles, biking 112 miles and then running a marathon, 26.2 miles, without stopping. This is an Ironman Triathlon*.

Now consider the challenge of being blind, and having the goal of competing and finishing an Ironman Triathlon.

Caroline Gaynor has enabled female blind athletes to accomplish this incredible goal, by acting as their guide. In 2010, she became the first female to guide a female blind triathlete in an Ironman Triathlon*. Subsequently, Caroline has guided 10 blind female triathletes in over 30 triathlons,** including 6 Ironmans. She has guided in 2 Ironman Triathlons in the past month alone.biking guide pic

I heard Caroline’s very moving story of acting as a triathlete guide at the BAM Alliance Annual Conference, which I attended this past Sunday – Tuesday. Caroline’s inspiring speech captivated the audience. Beyond her obvious physical accomplishments, was Caroline’s view of her role in assisting blind triathletes. Caroline’s goal is how she can best enable the blind triathlete to reach their goal. She feels it is their race, not her event. Her role is to do whatever she can to enable the blind athlete to succeed.

Consider the incredible level of trust which the blind triathlete is placing in Caroline, as her guide. The two are tethered together during the swimming and running parts of a triathlon, and ride a tandem bicycle for the biking portion. For an Ironman competition, Caroline and the blind triathlete are connected and working together for up to 17 hours.

While swimming, the blind triathlete cannot hear (due to being in the water). Caroline functions as her eyes and ears, protecting the tethered blind athlete from other swimmers. Throughout the event, Caroline’s role is to anticipate challenges and obstacles, such as curves, bumps, elevation changes and other competitors while on the road. Caroline must determine and communicate the challenges and problems which the blind triathlete cannot do on her own.

Caroline has to adapt to the different styles and abilities of each triathlete she guIronman picides. The blind triathlete and Caroline usually do not train or practice together prior to Caroline acting as her guide. Caroline must act quickly and decisively, but in a calm, confident and reassuring manner throughout the event.

Caroline is an associate for Dimensional Fund Advisors (DFA), providing support to investment firms such as ours. DFA is the primary investment firm we recommend and use for stock investments. DFA has grown to become one of the 10 largest mutual fund companies, with approximately $400 billion under management. Our firm has a fiduciary responsibility to put our client’s interest first, ahead of our own interest. DFA and Caroline have been successful by understanding their clients (and triathletes) and helping them to achieve their goals.

Caroline understands the blind triathlete’s goal, which is to complete the event safely and successfully. For an Ironman event, where each part of the event is far longer than in a triathlon, the goal is to finish in 17 hours and to hear the event announcer’s words, “Mary Smith, you are an Ironman.” That means the teamwork, trust and effort were successful.

When functioning as a guide, Caroline will not hear her name called at the end of an Ironman competition. Caroline’s role is to assist the blind triathlete in reaching their goal, to hear their name called out. Caroline enabled someone else to compete, she earned their trust and confidence, she anticipated issues that arose throughout the event and protected her triathlete.

Caroline Gaynor is an extraordinary guide, incredible athlete and role model. We can all learn from her.

To learn more about Caroline Gaynor, see or on Twitter, @carolinebikes

*Ironman Triathlon: A sequence of long-distance triathlon races consisting of a 2.4 mile swim, a 112 mile bicycle ride and a 26.2 mile marathon run.

**Olympic Triathlon: A sequence of standard distance triathlon races consisting of a 0.93 mile swim, a 24.8 mile bicycle ride and a 6.2 mile run.

Financially “scary” things you should avoid

  1. Market timing.  It does not work.  You cannot be consistently right in trying to get in and out of the stock market and predict the highs and lows.
  2. Junk Bonds.  The additional interest that low quality bonds pay are not worth the additional risk, as there is a much greater chance of not getting your principal back.  These are also know as “high yield bonds.”
  3. Hedge funds.  In general, they do not outperform assets class mutual funds, especially after considering their very high internal costs, high turnover rates which cause higher taxes and illiquidity.  They have not proven to be worth the risk, even though they are marketed to reduce risk.
  4. Municipal bonds which are all from one state.  Diversification is very important, even in fixed income investing.  You should own bonds from many states, not just your state of residency to avoid state income taxes.  If you only own bonds from one state, the risk of default is more concentrated.
  5. Mutual funds or money managers that do not equal or outperform their respective benchmark or peers.  Why invest in a mutual fund that is underperforming?  You need to review this over time, to see if your investments, funds or money managers are underperforming.  We can assist you with this, if you would like.
  6. Mutual funds or investments which are all in one asset class, usually US large companies.  You will have a more successful long term investment experience by being globally diversified, which means owning many assets classes, such as US small value, International Value, Emerging Markets and Real Estate.
  7. Owning investments which generate high taxes in your taxable accounts.  We can reduce our clients’ taxes by focusing on where certain investments are held (in a taxable or retirement account).

Having the Right Strategy

We have adhered to the same investment strategy since we formed our firm in 2003. We take great pride in this consistency, as our philosophy has been proven over time.

As we observe the investment world, we only gain more confidence that our strategy is right for the long term.

Wednesday morning before leaving for work I glanced at an interview with the CEO of Wal-Mart on CNBC, who talked about their plans for the future. He was positive about their prospects and the economy in general. A few hours later, Wal-Mart released a completely different picture. They said earnings would decline 8-12% in their next fiscal year, as greater turnaround efforts were needed in the face of stiff competition and employee wage increases.

The Wal-Mart headlines and news about further restructuring at GE lead me to do some research about their long term stock performances. The data is shocking. It shows that what you may perceive as a great company, or what was once a great company 5, 10, or 20 years ago, may not be such great stock investments.

The information below should reinforce to you that no one can predict how the business environment can dramatically change. The past success of a company does not guarantee its future success and the company’s stock market returns for the future. This is why we do not recommend investing in individual stocks.

Wal-Mart has grown to be the largest retailer in the world. How has Wal-Mart’s stock done? It has trailed the S & P 500** over the past 1, 3, 5, 10 and 15 years. In more recent years, the underperformance is very significant. In the past 3 years, it has underperformed the S & P 500 by over 15% per year. So far this year, after the huge earnings decline announcement on Wednesday, the stock is down 30%.

GE was a great company and had a terrific investment reputation for many decades. How has GE’s stock performed in the past 10 or 15 years? If you had invested $1 million in GE 10 years ago, you would have just over $1 million today. No growth at all. Had you invested in the diversified S & P 500, your investment would have doubled to over $2.1 million.

GE stock returned an average of -2.32% annually over the last 15 years. During the same 15 year period, the S & P 500 earned 4.57% per year, or 6.89% per year greater than GE. Over the past 10 years, GE’s stock averaged .65% per year while the S &P 500 returned 7.72%.  IBM is another great company which has trailed the S & P 500 over the past 15 years. In the past 3 years, it has underperformed the S & P 500 by over 22% per year and in the past 5 years it has underperformed the S & P 500 by 10% per year.

These stocks are examples of three companies which have underperformed the broader S & P 500. There are obviously many companies which have outperformed the S & P 500. This information, while a limited sample, should confirm some of our core investment beliefs:

  • It is difficult or impossible to predict the future.
  • It is difficult or impossible to accurately predict the future of specific companies over long term periods of time.
  • Diversification is key.
  • Concentrating your assets in a few stocks can be very hazardous to your financial future.  You may do OK, but you will likely do much better by being more broadly diversified.  We don’t think the risk of owning 5-10 stocks is worth the benefit of being diversified.
  • Owning broad, globally diversified mutual funds (as we recommend) is the best strategy for long term financial success in the stock market.  These mutual funds should be very low cost.
  • These mutual funds should not be trying to pick the top stocks (“actively managed”), as these type of funds generally underperform their respective benchmarks over the long term.

We recognize that we cannot identify which companies will be the most successful stocks over the next 5, 10 or 15 years. Who would have predicted that Apple would be this successful 15 years ago? Who would have thought GE and Wal-Mart would be significantly underperforming stocks over the past 15 years? Fifteen years ago, the iPhone was 7 years from introduction. While Apple stock has been wildly successful over the past 5-15 years, even after selling 65 million iPhones in its last fiscal quarter, Apple stock has also underperformed the S & P 500 over the last three years.

As our goal is to provide you with a secure financial future, we have adopted the long term investment strategies which will give you and your family the most likely opportunity for financial success.

**The S &P 500 is a broad unmanaged index of 500 large US based companies.

Investment Expenses Matter More Than You Think

Costs and expenses play an important part in our every day lives.

When costs are clear and understandable, they are usually a major aspect of buying a product or a spending decision.

When you book a hotel, rental car or airline ticket, the costs are clear and likely factor into what reservation you make.

When we buy gas, each of us generally compares gas stations to check prices. It makes sense, right, as we don’t want to overpay.

However, even if there was a 10 cent per gallon price difference every time you fill up, it would only save the average person about $50 per year, if you drive 12,000 miles per year and get 25 miles per gallon. Lots of effort goes into saving $50 or so per year.

But you can decide to understand and minimize your investment expenses, which could save you hundreds of thousands of dollars, or even more, over many years.  Investment expenses are not usually fully understood and are not clearly stated. So you may not really understand the total costs of your investments.

If you invest $2 million over 10 years and it grows at 7% per year, you would have $3,934,000. But what if your investment expenses were .5% higher during the same time period? Due to the higher expenses, and reduced returns, you would have $3,754,000 or $180,000 less. Is that worth it, to understand your expenses?

If you had $5,000,000 and invested it for 10 years at the same 7% growth rate, it would grow to $9,835,000. If you selected investments with .5% higher expenses, it would cost you almost $450,000 over ten years ($9,835,000 versus $9,386,000).

When we select the investments that we recommend for our clients, the investment performance, costs and tax impact are primary factors.

When we evaluate other investments owned by prospects or for some clients who hold certain assets other than at our firm, we see a common pattern over and over. The investment costs of these other investments, such as the internal expense ratios of mutual funds, are almost always significantly higher than the expense ratios of the mutual funds that we recommend. This would be fine, if these mutual funds had better performance records. However, that is usually not the case. Most times, prospects are paying more in expenses and getting worse performance returns, but they do not realize either of these things.

If you are a client, you should know that we utilize some of the lowest cost investments available, which have also provided excellent long term investment returns, as compared to their respective benchmarks and comparative mutual funds.

If you are not a client, we would be pleased to review your current portfolio with you. In the long term, understanding the costs you are really incurring, whether out of pocket or within a mutual fund or annuity, can be worth huge amounts of money. Understanding your costs and your actual performance can be worth thousands or even millions, over many years, depending on the size of your portfolio.

The next time you need to get gas, think about the effort you are making to compare prices. Are you making the same effort to understand your investment costs?

What is normal?

The 3 months ending September 30, 2015 were not pleasant for investors worldwide. This was the first down quarter in over 3 years for major indexes, such as the S & P 500.

Downturns like the past quarter happen nearly every year. They are normal. They are part of investing in stocks.

We focus on continuous learning and conveying important financial information to you. The following data should give you the confidence and courage to adhere to your financial plan and asset allocation. This will contribute to your long term financial success.

While we recommend owning a globally diversified stock portfolio, a review of US large company stocks, as measured by the S & P 500 index, should provide you with this long term confidence.

20 years ago:

S & P 500, as of 9/30/1995:      584

15 years ago:

S & P 500, as of 9/30/00:         1,436

10 years ago:

S & P 500, as of 9/30/05:         1,229

2010 through current:

S & P 500, as of 9/30/10:         1,141

S & P 500, as of 9/30/11:          1,131

S & P 500, as of 9/30/12:         1,441

S & P 500, as of 9/30/13:         1,682

S & P 500, as of 9/30/14:         1,972

S & P 500, as of 9/30/15:         1,920

We hope this helps you to view market volatility as temporary, as a short term issue.The more you focus on the long term, the more successful you will be.