Monthly Archives: June 2013

Never Neglect the Quiet Spouse

There is something predictable about meeting with a married couple to discuss finances.  One of them usually takes the lead.  But it’s misleading to assume that the one who dominates the conversation is the one who will make the decision.

A financial advisor recounts this story about meeting with a couple who came to him for a financial plan.

I received an outreach call from a prospective client a few years ago. He was in his late 50s and a very active, do-it-yourself investor. He wanted to retire in a few years, but the 2008 financial crisis had left him concerned about his ability to afford retirement. He was looking for a financial plan.
When he came in for the first meeting, he brought his wife along, but he did all the talking. Other than providing the household budget, the wife sat quietly to the side. This isn’t all that uncommon — one spouse typically takes the lead. But if I was going to create a financial plan for both of them, I’d need her input. So I tried to engage the wife directly to find out her thoughts and concerns. I’d ask them both a question about investing, such as how they felt about investing in individual stocks. After the husband outlined his strategy, I turned to the wife and asked her, “Well, what do you feel about that?”

Her response was that she’d never really understood the process but wanted to learn. I tried to get her to contribute more during the remainder of our hour-and-a-half opening meeting, but she didn’t offer much.

A similar pattern continued in the follow-up meeting a few days later. We’d drafted a financial plan and an investment plan for the husband’s IRA, which held around $1.5 million; the couple’s joint account, worth $300,000, wasn’t added to the mix until they’d decided to hire us. They were both on board with the plan, but the wife still didn’t engage, despite my efforts.

When they left the office, I assumed she really just wasn’t interested, but I figured I’d tried my best. Then, three weeks later, the wife called me out of the blue. It turns out she had inherited an investment portfolio five years ago worth $4 million. The original broker who had worked with her father was currently managing the investments for her, but she couldn’t stand talking to him, because he was so condescending.

I asked her why she hadn’t brought this up during the opening meeting, and she implied, but clearly, that she was sitting back and waiting to see how I operated. Besides, she said, this inheritance was for her children. She and her husband were retiring on her husband’s IRA, and that’s what the initial meeting had been about.

To say I was surprised would be an understatement. I’ve worked with couples where the passive wife turned out to hold a graduate degree in economics. Wives often let their husbands do the talking but then step in to say what they want to do. But I’d never run into this kind of situation, where the passive spouse was in direct control of most of the assets and kept virtually silent through the opening meetings.

Even if the quiet spouse really doesn’t get involved in family finances, at some point, she could find herself “suddenly single” because of the death of her spouse.  It’s the main reason I wrote Before I Go.  For more information about our firm, or the book, go HERE and get in touch with us.

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The Best Time to Invest

Mark Mobius is the executive chairman of Templeton Emerging Markets Group.  He recounts that day he attended a conference in Canada with the late John Templeton.  He was asked by a young lady in the audience: “I’ve just inherited some money from my grandfather. When is the best time for me to invest it?” Templeton replied: “Young lady, the best time to invest is when you have money.”  Why is this a good answer?  Because nobody rings a bell when there is a buying opportunity.  In fact, the opposite is usually the case.

Investing during a bear market is easier said than done, and I readily admit it’s psychologically a very difficult thing to do. It requires you to look beyond the immediate bad news and toward a potential future recovery. If all your friends and neighbors are giving up on their stock market investments, it’s very easy to be swayed to do the same. In the realm of behavioral economics this is called “herding.”

If the newspapers are reporting how dire the market is and how it will get worse, you can also become subject to what we call the “whipsaw” effect – buying and selling at the wrong times. This is what happened when many sold in a panic at the bottom of the market during the US subprime crisis in late 2008 and early 2009. Then, after the market moved up by over 50%, many decided that they were missing the boat and had to get into the market, buying at the market top! If you are engaging in this type of behavior, you are almost certain to lose money. Without a long-term view you just aren’t likely to be able to have the discipline to continue investing in a bear market and wait for the potential upturn.

What is one of the other “secrets” to investing success?


So if you’ve got money to invest, and are taking a long-term view and thus not hung up on timing the market, how and where do you invest it? Another simple answer: diversify. We’ve all heard about people who made fortunes by investing in one company, but that’s not common. It reminds me of the saying, “If you want to keep all your eggs in one basket, you had better watch that basket carefully!” Most of us don’t have the capability or time to constantly monitor companies, and even professional investors realize that if they are not actually controlling the company in which they invest, some unknown or unexpected event can wipe them out. While diversification doesn’t guarantee a profit or protect against loss, it can potentially help mitigate some volatility.

I think it’s important to be diversified not only across different companies, but across different industries and, most importantly, across different countries. One reason why professionally managed strategies are so popular globally is because they enable investors to be well-diversified and have a variety of stocks that they probably couldn’t properly research and invest in themselves. Unfortunately, many investors have portfolios that invest in only one country… their own. I see this as a big mistake because they are missing out on potential opportunities all over the globe, which is the job of my team and I to uncover.

If time in the market – rather than timing the market – is key, and diversification adds to the chances for success, how can the average investor increase his chances even more?  Get professional help to overcome the psychological tendency to follow the herd, and rely on the expertise of professional investment managers to create truly globally diversified portfolios.

Read the whole thing.

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Market Volatility and You

It’s been quite a ride since the March 2009 valley in stocks.  Most people who stayed in the market have cheered the new highs but many are concerned that another dip can happen again.  So what do we do?

We have our opinion but we are not all-seeing so we can’t tell anyone with certainty whether stocks have room to run or are in for a major correction.  We do know that there will be both Bull and Bear market turns; we just don’t know when.

That’s the reason we have constructed the defensive, diversified portfolios we have been managing.  We have always believed that calling market turns is not possible on a consistent basis.  Even those who claim to have called the drop of 2008 missed the timing, often by years, and those same “experts” were not the ones who told everyone to get back in at the right time.

We have created portfolios that are designed to hold up over the long-term.  As long as we have set a prudent course of action, short-term market moves are not relevant to achieving long-term goals.   In fact, market turbulence offers a chance to review plans and revisit asset allocations to make sure that long-term goals are being met.

The importance of keeping emotions out of financial decisions is best underlined by a study by Fidelity Investments that showed that 401(k) savers who continued to make contributions and stuck with their asset allocation during the financial crisis saw their account balances grow by 50% from September 2008 through June 2011.  Savers who fled from equities had growth of just 2%.

If you want more of our take on recent market events, give us a call.  We’ll be happy to talk with you.

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Bernanke Outlines End To Fed’s Unprecedented Policy Easing

Via Bloomberg News

Federal Reserve Chairman Ben S. Bernanke is putting investors on notice that the central bank is prepared to begin phasing out one of the most aggressive easing programs in its century-long history later this year.

The Fed will probably taper its $85 billion in monthly bond buying later in 2013 and halt purchases around mid-2014 as long as the world’s largest economy performs in line with Fed projections, Bernanke told reporters yesterday in Washington after a two-day meeting of the Federal Open Market Committee.

The US stock market sold off yesterday and today.  The Wall Street Journal commented:

Stocks started the day with broad declines but dropped to session lows late in Thursday’s session. The Dow Jones Industrial Average shed 350 points, or 2.3%, to 14757, on pace for its biggest decline of the year. The Standard & Poor’s 500-stock index lost 39 points, or 2.4%, to 1589. The Nasdaq Composite Index fell 78 points, or 2.3%, to 3364.

We are of the opinion that the correction that we are seeing is probably overdue.  We hope that the banks, who should have learned their lesson in 2008, will not find themselves overextended again, but greed is a powerful motivator.  Be prepared for a bumpy ride.

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Cross Selling

Imagine that a bank owned a brokerage firm.  Like Bank of America and Merrill Lynch or a number of other major banks.  The bank would like the customer of the brokerage firm to get a mortgage from the bank, and would like the bank’s customers to open investment accounts with their brokers.  So the banks incentivize their employees to encourage their customers to do business with each other.   That’s called “cross selling” and it has worked well for some firms, less well for others.

But there’s a problem.  Cross-selling creates a conflict of interest.  The bank may not have the best loan deal for the brokerage client, and the bank’s customer may not be getting the best deal from the brokerage firm.

Cross selling is more common now that major brokerage firms were merged into banks after the crash of 2008.  Be cautious about cross sales pitches because there’s a financial incentive on the part of the banker or broker to do so.

The independent RIA who’s not affiliated with a bank will probably provide the most unbiased advice.

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Best and worst states to do business

Via Chief Executive (H/T First Trust) ninth annual report:

Chief Executive‘s ninth annual report on the best and worst states in which to do business was recently released for 2013 and Texas was ranked #1 for the ninth time, according to The survey garnered feedback from 736 CEOs  –  the highest response on record. Some of the more critical issues measured by the study are taxation, regulation, quality of workforce and living environment. Nine states have no income tax and two (Oklahoma and Kansas) have lowered theirs. Many states, such as Louisiana, are making big strides in creating more favorable business climates. Louisiana’s ranking has jumped from 47th in 2006 to 11th in 2013. Michigan became the 24th right-to-work state. California grabbed the 50th slot (worst state) for the ninth time. The top five are as follows (no change from 2012): Texas; Florida; North Carolina; Tennessee; and Indiana. The bottom five are as follows: Michigan; Massachusetts; Illinois; New York; and California.

Our state of Virginia came in at #7.


Financial planning for everybody

Did you like the Porsche in the previous post?  There are a few ways you can get it: inherit the money from rich parents, win the lottery, or prepare a plan to get enough money together to be able to buy one.

We have previously noted that the biggest regret that rich people have is that they did not start planning earlier.  What keeps people from getting a financial plan?

  • Not enough time?   This is usually accompanied by not knowing where to start.  After all, if you have never prepared a financial plan before you probably don’t have the expertise to do one that is actually worthwhile.
  • They cost too much?  Lots of financial firms will prepare a financial plan for you but will charge thousands of dollars.  It may be too costly at your stage in life.
  • You want to manage your own money?  Most of the major investment firms that offer financial planning want you to open an account with them before they will prepare a plan.

Whatever the reason, many people spend more time planning a trip than planning their financial future.  If you want to see what we can do for you, get in touch with us.

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2014 Porsche 911 Turbo and Turbo S

The purpose of accumulating wealth is to be able to buy what you want without looking too closely at the price; to splurge from time to time.  And for many people splurging is buying the sports car that they always wanted.  Well, how about a Porsche? From American Luxury Magazine.

The thing about Porsche 911s is that you either love them or don’t care much for them. We’d venture to say that most of the people in the latter category are people who’ve never driven them because, quite possibly, Porsche represents the pinnacle of auto engineering. The rest of the equation is really more of an emotional response to the unmistakable figure of the 911.

The Porsche 911 Turbo ($149,250 starting price) adds more muscle to the latest 911 refresh. It features a twin-turbo direct-injection 3.8-liter flat-six engine that puts out 520 horsepower. Perhaps equally impressive is that it still manages to achieve 24 mpg. The S version of the 911 Turbo ($182,050 starting price) produces 560 horsepower.

Beyond the premium audio and luxurious leather you’ve come to expect in a Porsche, these Turbo versions also features radar-guided cruise control, road sign recognition, and an advanced dual LED headlight system appropriately called Porsche Dynamic Light System Plus.

For those of you who scan car articles for 0-60 mph times, here they are: 3.2s for the Turbo, and 2.9s seconds for the Turbo S.

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Interesting statistic about high net worth investors: one in three either was born abroad or is a first-generation American,

New research from BMO Private Bank tells us that lots of American millionaires were either not born in the US or had at least one foreign-born parent.

An online survey of 482 U.S. adults with $1 million or more in investable assets found that one in three either was born abroad or is a first-generation American, meaning at least one parent was born elsewhere, On Wall Street reports. Perhaps not surprisingly, 80% of this cohort are self-made millionaires, compared with 67% of total respondents.

Is there any conclusion that can be drawn from this?  A guess on my part indicates that immigrants, or children of immigrants may be more driven to succeed that native-born Americans, lacking well-to-do parents to fall back on.  In many cases people who gain wealth through their own efforts do so by starting and owning their own business, whether it’s a laundry a dry-cleaning shop, a building contractor, or a newly minted software billionaire.  Perhaps speaking with an accent or lacking a college education makes it more difficult for the foreign-born to get ahead in the corporate world and forces them to start a business and become wealthy that way.   In any case, the statistic is counterintuitive and for that reason, very interesting.


Living longer, working longer

The “old” retirement age of 65 may be going out the window.  In an era or low, low interest rates, the opportunity for people to live off their savings income is becoming increasingly difficult.  If you retire and put your savings in the bank, earning 1% or less, you have to have a pretty big nest egg to generate the kind of interest income that your parents received from the same amount of money.

It was only recently that the mandatory 65 retirement age was scrapped and today a lot of people reach that age with no slowdown in their work life.  Of course it also helps that “work” today is less physically intensive than a century ago or even 50 years ago, allowing people to work longer.

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