How do you define financial success?

Defining success, and specifically financial success, can be very personal and subjective.

A speaker at a recent national investment conference I attended stated that men tend to evaluate investment success based on their principal balance, performance and returns.  Women are different, as they tend to be much more focused on their annual cash flow.  Women are generally more concerned about not running out of money.

Both of these are very valid ways to judge your financial progress and how well you are doing.  Our role is to make sure that we understand what is most important to you, and help you meet those objectives.

When working with clients, and particularly those who have gone through a life transition, we focus on helping you to figure out how much money you will need each year to live comfortably and maintain your lifestyle.  Discussing this in detail leads to developing a personalized investment plan for you. Providing you with comfort and clarity are key to us.

As life expectancy is increasing, planning so that you and your family have adequate resources for longer periods of time has increased in importance.  Once we understand your cash flow needs, we can implement our investment strategy, which is designed for the long term.  Our focus is not on outperforming a given index for a month or a year.  Our goal is investment performance that will provide you with adequate financial resources throughout your life.  This is true investment success.

Clearly a significant role is for us to provide you with solid long term investment performance.  In terms of stock market performance, academic research shows that the vast majority of active mutual funds and money managers do not outperform their respective benchmarks over the long term.  The mutual funds we have recommended since we started our firm have outperformed the vast majority of the actively managed mutual funds in each of their respective asset classes.  Defined in this manner, we are successful.

Another measure of financial success is whether you have avoided big financial mistakes.  This is another role that we view as very critical.  During your life, you may be faced with some major decisions, which we can assist you with.  When clients have to make decisions about whether to take a pension distribution over their joint lives or a single life, there is usually a definitive answer.  We can assist clients in deciding when to begin taking Social Security or other retirement distributions.  We help clients with multi-generational planning with their estate plans, as well as charitable giving.  As discussed above, we help you to determine how much you can safely withdraw each year, so you can live comfortably, while being confident that you will not run out of money.

One of our core investment philosophies is diversification.  While the 2015 stock market performance for the funds that we recommend in the US and Internationally are up or down slightly for the year, we have avoided some of the major losses that a number of individual stocks and huge hedge funds and private money managers have incurred.  There have been many reports of billion dollar money managers that have lost 10%, 20% or 30% this year, and some have even announced they are closing their funds.  These funds have usually made large bets on specific companies, oil and gas, or other commodity related companies.  By being well diversified across companies, industries and countries, we have avoided these types of “preventable” losses and risks.  We know that being highly diversified the right strategy for your long term investment success.

As interest rates have been so low for many years, we have been very disciplined not to “reach for yield.” This means we have not purchased high yield bonds to get a little more interest rate return, at the potential cost of risking your investment principal.  Many investors may have purchased “high yield” or “junk” bonds for these reasons, but have not fully understood the potential downside.  It was reported in the WSJ on December 10, 2015 that a formerly large bond mutual fund, Third Avenue Focused Credit Fund, which once had $2.4 billion in assets, is down 27% for 2015 and is now blocking investors from being able to redeem their money.  This is an example of why we only purchase investment grade bonds or bond funds.  The risk is not worth it.

Similarly, some stock investors have focused on buying stocks with large dividend yields, to make up for low interest rates on bonds or CDs.  We don’t feel that this is the right strategy, as this is risking investment principal in search of higher yield.  If the stock drops, your net return can be far worse than the potential extra interest you were trying to obtain.  A recent example is Kinder Morgan, an energy company.  This stock, which was considered safe and a source of steadily rising dividends, has lost over 60% of its value in 2015 and just reduced its dividend by 75%.  Likewise, IBM pays above a 3.5% dividend yield, but its stock has been steadily dropping for years and has underperformed the S&P 500 by over 11.5% per year for the past 5 years.

The financial world can be complex.  We can provide you with clarity and answers.  Even though none of us can predict the future, we can work with you to develop strategies and solutions that you will be able to understand, so that you and your family can live comfortably and with peace of mind.


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