Why you should not always believe conventional wisdom

Market forecasts. Political predictions. The direction of interest rates. The future price of oil and gasoline.

For almost every topic, there are so-called experts who make predictions, which the general public accepts, follows and are thought tPlans-and-Guesses-copyo be true.

It is generally in your financial best interest to be very skeptical of most predictions. Frequently, you are best not to follow the “conventional wisdom,” which are the thoughts and opinions of experts in a field.

One of the key factors which differentiates our firm from many other financial advisors and brokerage firms is that we do not make or follow predictions in developing our investment recommendations.

Can you predict the future? We cannot. Neither can Warren Buffett.

Can we review your financial condition, learn about your goals and concerns, and then develop an appropriate financial plan for you? Yes. And we do not need the ability to predict the future to provide you with solid financial planning.

Did most market forecasters or energy experts predict the tremendous drop in oil prices over the past few years, from $100 a barrel to around $30 per barrel? No.

In 2008-09, the conventional wisdom then was that interest rates would be much higher by now. At the same time, many forecast that the actions of the Federal Reserve would cause runaway inflation. How accurate were these predictions? Would you have benefited from following them?

Today, interest rates are still nearly at the levels of 2008-09 and the inflation rate is barely at 2%. There have been no signs of double digit inflation since 2009. Following these inflation and interest rate predictions would have led to poor fixed income investment results. We follow a policy of investing in veryBigBoldPredictions high quality fixed income investments, of varying maturities, so you benefit over the long-run, regardless of whether interest rates go up or down.

Most investors have portfolios that are heavily weighted in large cap growth stocks or mutual funds. These are generally considered to be the most rewarding investments and best place to invest in stocks. This would be the conventional wisdom and what we normally see when we evaluate the investments of prospects to our firm.

However, there is significant academic data which shows that over the long run, investing in small and value companies is more financially rewarding than investing primarily in large and growth companies. While there are years or periods in which holding smaller or value companies is not as advantageous, time has repeatedly shown that being patient and adhering to this strategy has been financially rewarding.

Sometimes not following conventional wisdom can be difficult. However, having an investment strategy that is well thought out, disciplined, consistent and evidenced-based is usually better than relying on predictions and guesses.

What is best for you and your family?

Buckets, timeframe, conversations and confidence

When investing, determining the timeframe and your goals are critical.goalsbg

Once you have identified your goals, the related investment timeframe should become clear.  The timeframe should then guide how we develop the investment strategy for these goals.

If you have a newborn or a young grandchild for whom you want to save for college, your timeframe is 18-20 years. You have adequate years to ride out the inevitable down periods of the stock market.  Thus, you should allocate a significant amount of the assets, such as 75-80% of the investable assets, to a globally diversified stock portfolio.

On the other hand, if you are planning to do a significant house renovation in the next year or have a child or grandchild that will be entering college very soon, you should be very conservative.  You should have all or most of the estimated needed funds in cash or other fixed income.  Almost all of the assets should not be in stocks.  And, you may want to have additional extra funds saved, to handle unexpected costs.

We think of these concepts has having various “investment buckets.”  The short-term buckets, for your short-term goals or needs, would be invested quite conservatively.  For your long-term goals or buckets, you have the time frame to have a greater stock allocation, as you have more time to deal with the stock market volatility or short-term underperformance.

While this sounds good on paper, or theoretically, it can be hard in real life.  It can be especially difficult for those dealing with retirement issues.  We can set an appropriate asset allocation and investment plan with a client, which we all agree upon after discussions and analysis.  But then the reality of a down stock market tests your confidence.  It may raise questions and doubts in your mind.  You may get concerned or worried.  Should we change plans?  Will this work out?  Will we have enough money to retire and live on?

Dealing with uncertainty can be hard.  However, uncertainty is a permanent reality.  Uncertainty will always be with us.Uncertainty-Equals-Reality

No one can predict the future, particularly regarding the stock market returns.  This can make it hard for you to be confident about your financial future.  The best remedy for this issue is for us to have conversations.  You can ask questions which are concerning you.  We listen to you.  We review and talk and provide you with our insight and thoughts.  We can re-explain our consistent and long-adhered to investment strategy.

The goal of these conversations is to provide you with more confidence and clarity about the future, uncertain as it may be.  We have repeatedly found that these types of conversations are very worthwhile. Invaluable. They enable you as the client and investor to express your thoughts and questions, and allows us to listen, respond and explain.  It works.  For both of us.

When there is a short term goal, or investment bucket like a house renovation in a few years, the planning should be straightforward.  There should be great clarity and confidence, if handled properly.

For long term goals, like retirement and your estate planning, with so many unknowns and 20-30 year time horizons, your clarity and confidence levels can ebb and flow over time.  Like a long-term personal relationship, working towards long-term financial goals requires lots of work and conversations.  Through these efforts, the relationship can strengthen.  Your confidence improves.  You feel better, even if the world around you has not changed much.  But your perspective and outlook changes.

This is our role.  This is the added value we bring to this relationship, to enable you to reach your goals with more confidence and clarity.



Consider Refinancing Your Mortgage Now

Mortgage rates have dropped significantly in the past few months, and especially this week.  You should immediately see if refinancing your mortgage makes sense.

Mortgage rates are closely tied to the 10 year US Treasury note yield, which has declMortgage rate picined from 2.27% on December 1, 2015 to around 1.6% over the past few days. This is a 3 year low.  Mortgage rates have dropped as well.  For 30 year mortgages, rates are now well below 4%, even in the 3.7% range, depending on the amount you want to borrow, points (if any, that you want to pay) and other factors.

Who do you know who…….has a mortgage with an interest rate above 4%, or even above 4.5%?  If so, this could be a great opportunity to refinance their existing mortgage and save money every month.

Does this apply to you?  Does this apply to your children or grandchildren?  To a frient, co-worker or other relative?  You can do yourself and others close to you a great favor by promptly acting on this information.  Make a phone call or send an e-mail.  Forward them this blog post.

Interest rate are very volatile.  If you think this applies to you, we encourage you to act promptly.  While rates may remain at these levels, or even go lower, they are unpredictable and could change directions quickly.

We feel it is our obligation to provide you with this information, as part of the comprehensive financial
planning services that we provide.  One of the reasons we write this weekly blog is to point out or explain significant financial matters in a very timely manner.houseonmoney2

If you think you may benefit from refinancing, you should contact a mortgage lender, your bank or our firm.  We are not in the mortgage business, but we can assist you in analyzing this type of financial decision.

We want to assist you, your family and friends, so each of you can make the best financial decisions possible.  So who do you know who can benefit from this type of information?

Are the rough times behind us?

This was not supposed to be this week’s essay topic. As I finished my lunch in which I was outlining about a different topic, the waitress at the Chinese restaurant put a fortune cookie on my table. It read:

any rough times are behind you 2

“Any rough times are behind you.”

Yea right. This would be great if it could be true, but I know it can’t be. Life just does not work that way.

I know that I will face more challenges in the future, both personally and professionally. Unfortunately, one day my parents will age. I will face conflicts with my children, spouse or family members.

We will each face challenges in the future that will cause certain periods of “rough times” to deal with. One of the keys to our future is how we handle these difficult periods or the issues we will confront.

Will you handle it alone? Or will you choose to benefit from the support and guidance of friends, family and advisors? Will you talk and openly share with others? Will you be vulnerable, so others can try to provide you with guidance, strength and clarity?

During the past 5 weeks, investors have had to face another period of “rough times.” A few of our clients have called or come in for meetings, to talk through their concerns. This is our opportunity to add real value to their life, as we listened to their concerns and worries. During thes e conversations, we exchanged thoughts and ideas.

We were able to give them confidence that our underlying investment philosophy isPresentFuture still valid. Through this process, the calls and meetings ended with each person or couple feeling better about their investment plan and strategy.

In a different respect, some of the investment sectors or asset classes that we invest in may underperform other asset classes (they are facing a “rough time.”) This asset class or style underperformance may occur for a short time or a number of years. We don’t know in advance, as we can’t predict the future.

We continually monitor and evaluate the mutual funds that we recommend based on how well they do compared to their respective peers. We compare the apples to the apples, and the blueberries to the blueberries. Based on this criteria, the type of apples we recommend (the mutual funds we have selected) compare very favorably to other types of apples over the long term, based on their 3-5-10-15 year track records.

While the apples (mutual funds that we have selected) may underperform some other fruit for a period of time, we are confident that our overall investment strategy will continue to perform well over the long term. The blueberries may outperform the apples for a year or three years, but we are confident that our basket of fruit (mutual funds we select) will outperform the vast majority of other fruit (other actively managed mutual funds) over the next 3-5-10 years.

And maybe even more important, we are confident that the asset allocation and investment plan we structure for you will provide for your ongoing standard of living and financial objectives. The goal is not always about outperforming a certain market sector, it is about your future cash flow in retirement and your ability to sleep well at night.

tough times ahead
No, not all the rough times are behind us.
There will be more drops in the stock market. There will be times when we each face personal crisis and problems. There will be times when some of our investment recommendations underperform certain sectors of the market.


But in the long run, working closely with us as your financial advisor when you do face personal, financial, estate planning issues or challenges will lead to a better outcome and help you to overcome these “rough times.”


We are here for you. Contact us when you need us. Or when you just want to talk something over.