10 (or more) Things You Should Know

  1. The top performing stock asset classes so far during 2016 are Emerging Markets, up 17-20%, and Real Estate (US and International), up 13-15%, while the S&P 500 is up nearly 8%.
  2. In the US, small and value asset classes are outperforming the S&P 500 for 2016 (Note: we recommend investing in a globally diversified portfolio of asset classes, not just in the S&P 500).
  3. The Brexit vote in the UK was on June 23, 2016. The results were announced on Friday, June 24 and worldwide stock markets plummeted in the following days. Since July 1, 2016, most broadly diversified international asset classes (which do not hold US based companies) have outperformed US based asset classes.
  4. It is incredibly difficult for active money managers to consistently outperform their benchmarks and their peers. In a recently issued report**, out of 641 US equity funds that were in the top 25% as of March 2014, only 7.3% of these funds remained in the top 25% as of March, 2016.
  5. In the same report, only .78% of US large-company funds and no mid-cap and no small company funds were able to remain in the top 25% of performing funds over five consecutive one year periods ending in March, 2016.
  6. US individual income tax rates have changed dramatically over decades, but not as significantly in recent years.
    1. In 1980, the top tax rate was 70% for taxable income above $215,400 (all data for married filing jointly) and there were 16 different tax brackets.
    2. After major tax reform in 1986, the top tax rate in 1987 was 38.5% for taxable income over $90,000 and there were 5 tax brackets.
    3. The top US income tax rate for married couples is now 39.6%, for taxable income above $466,950 and there are 7 tax brackets.
    4. The top rate has not changed since 2013, when it was increased from 35% in 2012 for taxable income over $388,350.
  7. The S&P 500 has grown significantly over decades, as the following figures show. You need to remain invested and be patient to benefit from the growth which stocks can and do provide, both in the US and internationally.
    1. January 1, 1980:        111
    2. January 1, 1990:       340
    3. January 1, 2000:    1,426
    4. January 1, 2010:    1,124
    5. August 24, 2016:   2,175 
  8. Social Security benefits for 2017 may increase very slightly. However, for most recipients, their net monthly check will likely decline, due to increases in the Medicare premiums which are deducted from their Social Security payments. The exact information will be released later this year.
  9. As evidence of how difficult it is to accurately predict individual stocks,would you have thought, predicted or known 10 or 20 years ago that these companies would be in the top 11 stocks based on market capitalization in the US?
    1. Apple, Microsoft, Amazon, Facebook or Alphabet/Google.
    2. This is why we recommend utilizing asset class mutual funds, which take the guess work out of stock picking, enabling you to get strong relative performance with excellent tax efficiency and at a very low cost.
  10. As we conclude this incredibly hot summer, consider the progress and increased quality of life we experience by the vast use of air conditioning. In the early 1970s, only about 52% of US households (owned, not rented) had some form of air conditioning. Now, over 90% of US households have air conditioning and over 98% of the homes in the South do. Even for those below the poverty level, more than 83% of US households have air conditioning.


**Source: S&P Spiva Persistence Scorecard, August 2016

Discipline-The Financial Benefits

Being disciplined takes effort and can be hard.

It takes discipline to regularly save, exercise and floss.

Being disciplined can be rewarding.

Being disciplined today can provide significant benefits in the future.

Discipline can lead to buying low and selling high.

Being disciplined helps to prevent big financial mistakes.

It takes discipline to sell and recognize gains when markets are rising.

It takes even more discipline to buy when markets are falling.

Being disciplined to do these things are in your financial best interest.

We can provide the assistance and advice to help you be disciplined….and financially successful.


It takes discipline to personally write these blog posts every week.

I really enjoy writing them and feel that it makes me an even better financial advisor and us a firm.  I hope my personal discipline is worthwhile and beneficial to you.  I have written these posts nearly every week for over two years and have written over 250 posts since 2009.

Five word financial advice

A number of financial advisors provided their top financial advice in only 5 words in a recent article.

The following is my 5 word financial advice:

Use an independent financial advisor

I think this is the foundation for almost any other financial advice, as having a successful long-term relationship with an excellent financial advisor may be the most critical step towards a financially secure and confident future, for almost anyone. Just like you should have an excellent internist and dentist, you should have an excellent financial advisor.

What are some key components of an excellent financial advisor?

An excellent financial advisor should be….

Independent….This means the advisor should be completely unbiased in making investment recommendations for you. The advisor should not be compensated or employed by the mutual funds of the company or investments which are recommended. For example, if your advisor works for Mutual Fund Company ABC and they primarily recommend products of Fund Company ABC, you are not getting independent advice and may not be getting the best investments available. This type of advisor, or the Fund Company’s or bank’s advisory service, may not always be acting only in your best financial interest.

Able to effectively communicate with you and know you personally. Your advisor should understand you and your personal goals and concerns. You should not ever feel like a number. You should be confident at the beginning of the relationship that your advisor will be working with you for many years in the future. You should be able to clearly understand your advisor. When he or she explains something, you should “get it.” You should feel comfortable with your advisor and his team and that they listen to you. You should get the sense that they truly care about you, your family and your best interest. They should be responsive to your calls, questions and requests.

A true financial advisor, not just a money manager. A money manager handles your investments. They may pick stocks, bonds and mutual funds for you, but that is about all. A true financial advisor will make investment recommendations, but that should really be the beginning of the relationship and services which they provide to you. An excellent financial advisor should be able to help you with almost all of the financial issues, questions and concerns you have in your life. You should feel comfortable asking, discussing and getting answers on diverse matters, such as how much can you withdraw annually in retirement, how much can you afford to help your children or grandchildren, social security, college savings, estate planning and charitable giving. If you want to move, your advisor should be ready and willing to discuss the various aspects of this decision with you. You should be comfortable and want to discuss any financial matter that is important to you or family with your financial advisor. If the advisor or you don’t feel these are appropriate discussions, you are not in the right advisor relationship.

Referred to you. This may not be essential, but being referred to a financial advisor by a trusted friend, relative or other person gives you the confidence to make this critical and important decision. We are fortunate (and greatly appreciative) that nearly all of our new clients are referred to us by current clients or others who know us professionally, such as attorneys or other CPAs. The advisor should be very familiar or have the expertise to deal with your specific issues. For example, we have extensive experience working with people who have gone through life transitions, such as the loss of a spouse or divorce. If a prospect came to us with a disabled child, which requires a specific type of trust and planning needs, we would recommend them to an advisor with expertise in those matters.

A fiduciary. This means that your advisor and the firm have a legal responsibility and obligation to always act in YOUR financial best interest, not in the best interest of the firm. This may surprise you, but many of the major brokerage firms, banks and insurance companies do not meet this standard. If you are considering switching advisors or questioning your current firm, ask if they meet the fiduciary standard. The answer should be a clear YES. If they don’t answer with a clear yes, and begin to give you a long explanation, they are likely not fiduciaries and that is NOT in your best interest. We feel you should only work with an advisor that meets the fiduciary standard for all of your investments.

Fee-only. An excellent financial advisor should not charge commissions, sales charges or loads for any investments which are recommended to you. You should be able to clearly understand how the advisor and their firm are paid. The explanation should be simple and direct. Do they charge you an advisory fee for their services, based on the assets which are being managed? That’s fine. We do. If they recommend mutual funds, are they being compensated in any way by the mutual fund company? For us, the answer is no. If the answer from another firm is yes, they are not fee-only. They may not be acting in your best interest. Many brokers do not clearly disclose mutual fund compensation, so you really need to ask directly about this.

Using a rational and understandable investment approach. We have utilized the same, consistent investment philosophy since our firm was founded in 2003 with solid performance results. We can describe it to you in one meeting and you will understand it. If you ask another firm about their investment approach, can they describe it to you? Is it based on predictions and guesses about stocks? How can you know they will be able to accurately predict the future? How and why do they decide to buy and sell stocks or mutual funds? If you are not confident in their answers to these questions, that is not a good sign. Also, an investment approach should ideally be very low cost and tax efficient, with steps to minimize your taxes.

Choosing an investment advisor is one of the most important decisions anyone can make.

For our current clients, we truly appreciate your trust in us and we take our responsibility to you very seriously.

If you are not a client, we hope this is helpful to you, as you consider your financial future. If you would like to contact us to begin a relationship with our firm, we would be pleased to talk to you.

US stock market near record highs: what does this mean for you?

The US stock market is near all-time record highs. The DJIA, the S&P 500 and the Russell 2000, a small company index, are all very close to their all-time highs.

How does this affect your future planning?Plans-and-Guesses-copy

Does this mean you should sell? Should you be worried or confident?

The stock markets of the US and the world have moved higher, not lower, over the long term. New highs have occurred hundreds of times, or more, in the past, and will reach new highs many times again in the future. Thus, the natural progression is to reach new highs.

We know that stocks will never move in a straight upward line. Stocks involve risk. Investing in stocks can mean enduring significant, quick declines and multi-year losing periods that seem like they will never end. But they do.

As we have seen repeatedly this year, a number of swift drops have been followed by stronger gains that have brought the major indices to higher levels than they were at the beginning of 2016.

Gains sometimes come at surprising times. This is why it is important to remain invested, regardless of what you may be thinking, worried about or what the media is focusing on. Given all the negativity that exists in the US and the world right now, US and International stock markets are positive for 2016. 

Our clients, who have remained allocated in a globally diversified portfolio of stock funds in accordance with their desired investment plans, have experienced both up and down markets. By remaining disciplined, patient and positive, they have been rewarded with financial gains.Uncertainty-Equals-Reality

Our investment philosophy is based on a long term perspective so our clients can be rewarded by the overall growth in world-wide stock markets.  The markets’ reaching new highs is certainly not a reason for us to make a major change in our investment philosophy. We would not recommend selling a major portion of a client’s stock fund holdings, just because the US stock market has reached a new high. That would be market timing, which has proven to be a loser’s game.

As we wrote about last week, How to consistently buy low and sell high, we may rebalance client portfolios and sell a small portion of a client’s stock funds. It may be appropriate for us to take some profits and re-allocate those assets into underperforming asset classes or into fixed income investments. This is a way to keep the amount of risk (stock allocation) in line with what we and the client have agreed upon is in their financial best interest.

The following concepts will help you to be positive and confident in our investment approach:

  • The rise of stocks in the long run is permanent.
  • Stock declines are temporary
  • Uncertainly will always be with us.  There will always be a next crisis.  Each crisis will eventually fade into a distant memory, or you will forget about it completely.
  • If you have ever sold out of a market and stayed out, you are way behind the broad markets.
  • What drives stock market returns over time is the long-term resilience and innovation of companies to grow their earnings, cash flows and dividends.
  • Over the 10 years ending 12/31/15, over 82% of US large cap managers, 88% of US mid-cap managers and 88% of US small-cap mutual fund managers have underperformed their respective benchmark.  The trend is the same for International mutual funds.
    • This is why we adopted our investment philosophy when we started our firm and continue to be even more confident in this approach.  We invest in low cost mutual funds which are similar to benchmarks.  By doing this, we expect to provide you with better returns than most other money managers or mutual funds over the long-term.

We are confident, despite all the troubles in the US and the world, that the long term economic future will be positive. We are rational optimists.

We look forward to helping you and your family plan and invest for the future. The future may be unknown and uncertain, but we will strive to do our best to help you handle that uncertainty, as well as be positive, confident and financially secure.