What a week! I jog down memory lane to visit the wild market ride from five years ago. At the end of the day, there are a lot of things to reassure us that our approach is the right one.
Read the entire article: Coming Downstairs in the Morning
Coming Downstairs in the Morning Read Post »
Apparently, I’m more technically challenged than I thought I was.
You might have received an errant “newsletter” this week on Wednesday. This is the reboot of the weekly digest that I’ve sent out for many years. But, when I reactivated it on Wednesday, it picked up some old test articles and sent them out immediately.
Sorry about that… please ignore!
You are supposed to get our weekly digest on Sunday mornings. It’s a lighter read than a hard-hitting investment dissection and analysis.
I intend to write articles, investment commentary, and analysis from time to time. When I’ve written an article, it will be presented here as the first article in the weekly digest email rather than delivered separately to you through other means.
I have also been working on an investing series over the last couple of weeks, which discusses the new administration’s economic and cost-cutting policies. I have completed the last article in that series about how tariffs, policy directives, onshoring, government cost-cutting, and reducing or eliminating bureaucratic red tape could help to completely reshape our economy if enacted.
Let me know if you’d like a copy of that last report, and I will forward it to you directly.
Thanks, and happy Sunday and have a great upcoming week!
Jeff
Technical Difficulties on a Reboot Read Post »
A colleague mentioned the other day that investing in the current stock and bond markets felt a bit like being in purgatory. And you know what? It does seem a little like purgatory, where souls are believed to await their final fate.
Just as purgatory is often depicted as a place of reflection and penance, investors in a challenging market environment undergo emotional turmoil. Seeing investments not yielding expected returns, or being stuck in positions with no clear exit strategy, can be mentally exhausting.
Admittedly, comparing anything to purgatory is not my preferred analogy, but I see his point.
After a smallish rally earlier this year, the stock market has turned down about 8% over just the last two months leaving us with a tiny sliver of profit so far this year and it seems like nothing is happening now, nor will it anytime soon.
And the bond market? Fuhgeddaboudit.
But here’s my preferred analogy:
Imagine that you and I are in a sailboat together. She’s a beaut’; sleek, polished, and built from years of study and analysis of the science of sailing.
We’ve launched her and we’re all together in the boat. We’ve got the sails trimmed, the keel is at just the right depth, and the rudder’s set in exactly the right direction.
But, there’s no wind. And we can’t make it windy either. We’re just stuck staring at each other, waiting for something to happen.
So maybe we try to jiggle things about by changing the configuration of the boat and trying some other different things.
But that’s not the problem. The problem is the wind, or more accurately the lack of it. No amount of adjusting on our boat is going to make the wind blow.
The risk is that during our jiggling and retrimming, the wind starts to blow and we find ourselves out of position and unable to take advantage of our newfound wind. Or worse yet, we’re so out of position a strong gust capsizes us.
Better just to wait in the calm, staring at each other, knowing the wind will blow again someday.
It always does.
~ Jeff
Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.
Information in this newsletter does not involve the rendering of personalized investment advice. A professional advisor (such as myself) should be consulted before implementing any of the options presented. No content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Sailing in Purgatory: An Analogy Read Post »
Roger Weller and I have known each other for about a couple of decades. For the past 10 or 15 years, I’ve been fortunate enough to have Roger as an advisor with JRSCM. He takes care of folks all up and down the Atlantic coast and has oodles of experience and knowledge of and about the business of planning and investing.
So, his comments are interesting and relevant to today’s market and drip of wisdom.
Hi everyone:
It’s been a while since we’ve discussed recent market activities with you, so we thought that you might like ourthoughts on the subject as recent markets have been so volatile lately. Remember our recent article on “Fear and Greed”? Yup, many investors get nervous and sell at market bottoms only to realize later that theyshould’ve been buying as markets generally go higher over time.
Old Fashioned Correction
The volatility you’ve been experiencing lately is really an old-fashioned correction. By definition, a correction is a 10% reduction to account balances after a solid increase was experienced in the markets.
Last summer, we had that increase that started in July and continued into the middle of August. A correction is a healthy situation as investors begin buying again once they realize that bargains are available.
Auto Strike
While its debatable as to whether a strike is good or bad, the economy can be affected by a decline in activity and Wall Street worries that such can disrupt the value of securities. The reduction in auto production will likely have a brief impact on investments, but long term our investments generally trend higher.
Potential Government Shut Down
Governmental legislative risk nearly always puts a drag on our portfolios, but once resolved, our markets heal rather quickly. Memories are most always short term, so selling should not be an option. Please don’t pay too much attention to the media as they just love to use a potential shut down to scare folks ….. just ignore them.
Interest Rate and Inflation Risks
Interest rates and inflation are like twins; one serves the other. The Fed just paused interest rates for the
second time since beginning their fight against inflation mainly because inflation has been slowing. So, despite their recent comments, the Fed is winning their war against inflation. But they still like to keep an oar in the water, so the mere thought of another interest rate increase caused the markets to drop again.
Summary
Please remember that the absolute worst time in the markets over the last 75 years has been the August –
October period, but the absolute best time has been the November – January period. Despite how you might feel about the markets today, the next few months should reflect much better performance
given the following:
Thanks for trusting us with your business. It’s truly been an honor serving you.
~Roger Weller
Guest Comments from Roger Weller Read Post »
It’s been a while since everyone’s heard from me in this format. I’ve received a lot of feedback in the past about how much everyone enjoyed my occasional comments (Thank You!) as well as the new posts of articles that I’ve found of interest this week.
I’ve tried several other formats thus far this year (as I’m sure most of you are aware… sorry about that) and I’ve been less than impressed with the feel, the content itself, or just the general “impersonal” -ness of the communications. My bad all the way. Thanks for your patience.
And so I’m back! There’s so much that I read and want to share with everyone each week that I keep coming back to this “weekly-new-posts-with-occasional-comments-by-me” format.
I hope you like it.
And if you don’t, there’s always the link at the bottom of this and every issue to unsubscribe.
I expect that I will be consistently using this space to either make weekly comments about the articles that I’ve clipped, or maybe some machinations of interest in the financial markets.
So, these “lead posts” of our weekly content will likely be a substitute for the long-form types of newsletters that I’ve written in the past.
Thanks for sticking around and I hope you enjoy the future posts. ~jrs
I’m Back… Well, I Never Really Left Read Post »
A hot topic of conversation around the ‘virtual water cooler’ these days is the subject of investment performance. Or more specifically, the lack thereof. It doesn’t seem to matter who you’re with or how you’re picking your investments; from professionals to do-it-yourselfers, everyone is suffering.
Let’s look into the reasons why 2015 is being such a bugger of a year for everyone, when seemingly nothing financially dramatic has happened.
US Stocks: US stocks have performed the best of any asset class thus far this year, which is saying little. The stock market has been range-bound since February and the net gain for the S&P 500 Index is hovering around +/- 2%, depending upon which day of the week you look at it. For all intents and purposes, it’s unchanged for the year.
International Stocks: European stocks have done well if your investments are Euro-based. Your actual performance would not reflect this as it’s based in dollars. Since the US dollar has strengthened considerably so far this year, dollar denominated funds have fared very poorly. Greek debt resolution also played a large role in the big fluctuation of these stocks. Good for the cost of European vacations, bad for American investors.
Emerging Market Stocks: Emerging market stocks continue their slippery descent: These economies have been largely affected by the considerable weakness of Chinese and Russian economies. The hopes of recovery that was anticipated before May this year has been dashed and now they are at the lowest level in the last 52 weeks.
Real Estate: Real estate based investments are highly sensitive to interest rates and investors have dumped the stocks since their high in March. They recently recovered from their lows because the interest rate scare has momentarily subsided. It’s questionable as to whether the recovery in these stocks will hold.
Long Term Bonds: After a very rough start to the year, long term bonds’ recent rally has been based on weak economic growth (GDP) and a not robust enough job market (too many temporary workers, stalled wage growth and record low participation rate). Apparently markets are adjusting to the effect of an upcoming interest rate increase.
Since basic investment tenets and asset allocation strategies all recommend that investors have various combinations of most, if not all of the above asset classes, picking a winning portfolio this year has been akin to picking a center for your basketball team and all of your choices are 4′ 11″.
“What Is Wrong With My Investments?” Read Post »
I used to make market comments quite frequently, but I don’t so much these days. It’s not that I no longer have an interest; I do still find the markets quite fascinating. It’s more that I’ve come to the conclusion that it makes no difference what I think: The markets will do what they do despite my opinion.
But when we’re faced with the rare situation when it looks like small minds are beginning to rule the day, I can’t resist stepping in to try to come to the rescue of those of us who wish to think bigger… globally… and long-term.
So first, let’s talk about the market facts: Yep, we’ve had a couple of lousy weeks in the market. So lousy in fact that the stock market (S&P 500 Index) is now basically unchanged from Thanksgiving of 2014. It’s so boring that the 3 month, 6 month and year-to-date returns are almost not measurable, leaving us with a less than a 1% total return overall since last fall.
What does this mean? Nothing. It’s a flat spot, which is a typical thing in the market from time to time. Sometimes we can get into these ruts for an extended period of time. Most likely, we’re just working off past excesses: The stock market gets a little ahead of itself from time to time and now it is taking a necessary breather. (Yawn here.)
The silver lining here is that a wicked sell off is also a great way to work off excess market valuations. Believe me, flat spots (consolidations) are a much easier way to digest past gains, unless you’re afraid of being bored to death.
The bottom line is that even with the past few weeks selloff, the current long-term uptrend is still intact. We’re still invested in equities in a meaningful way. If it changes in the future, we’ll step away from the stock market before bad turns to worse… and probably write about that too.
Second, let’s talk about Greece: Oh my. What a great story for the news channels. Although the story makes for great press, everyone has known for about 5 years that Greece is in trouble. If the market’s don’t like surprises and this is no surprise, then it’s no wonder that we haven’t seen much, if any market movement due to the newest leg of this crisis.
As I write this, it’s projected that Greek voters have voted “no” on furthering the bailout terms. It’s hard to say how the market will react, if at all. Greece is about 2% of the Eurozone and their GDP is about the same as Connecticut’s.
Although there won’t be a significant actual financial fallout, there could be some emotional, ‘what-if’ reaction. It could inject some volatility into financial markets in the coming weeks. If it’s enough to change the long-term trend of the US stock markets, we’ll adjust. Otherwise, we’ll take the media’s squawking with our usual grain of salt.
If you want to take action on the Greek crisis, I suggest that you take a European vacation. Everything that is Euro-based is cheaper. Stay in a nicer hotel in Munich or dine at a nicer restaurant in Paris. (Maybe stay away from Greece itself right now unless you have plenty of cash on hand, since the ATMs are only giving up about 60 Euros a day.)
And lastly, here are a couple of paragraphs from a recent interview with Aby Rosen (New York real estate tycoon):
More than 5 Billion was spent by rich Chinese investors on New York property between early 2013 and December 2014 – up from less than 300 million in 2012 – according to the Wall Street Journal. There are so many billionaires created in China on a monthly basis who are smart enough to know that taking money out of China is already profit in itself.
There are hundreds and hundreds, thousands and thousands of foreign investors wanting to spend their money in the U.S. There’s been a flight from South America, from Russians who want to take their money out of the country -the rouble’s collapse didn’t help lately but there is still enough money. There are Indians, Malaysians and Old Europeans, including Jews leaving France. Qatar is coming, Abu Dhabi is coming, Egyptians, people who made money in Africa. Lots of wealthy independent people are looking at America for second or third homes – and the US is far more welcoming now to foreigners than it ever has been.
Commerce is in. If real estate is booming, art is booming. If you have a great apartment, you need great art. The worlds of architecture, art and fashion are all melting together into one happy family. There’s so much money out there and people want to have a good time. What else are they going to do with their cash?
And of course, it’s not just real estate and art. The kinds of demographic moves Mr. Rosen is seeing will affect everything and everyone. Even you.
Jeff
The Market, Greece and Big Picture Thinking Read Post »
Should we have an opinion about the stock market, or even about the direction of the economy? Is it important to set a firm course of action based upon our expectations of what we think will occur in the coming months?
Most readers when asked, would think these questions a bit silly. Everyone “knows” that you must have an opinion to be a successful investor.
Or do you? Given the nature of how a publicly traded market truly functions, it’s quite possible that having a preconceived notion about it’s future direction could be more hindrance than help.
I consistently see evidence that the investors who 
have a firm opinion about what they believe will occur in the future are taking a risk with their flexibility. They’re messing with an essential investing skill that is the ability to change and adapt to a very fluid and dynamic situation.
Once a money manager or other professional makes a public declaration about an expected market direction, it becomes increasingly difficult for them to abandon their position should the market begin to prove them wrong. Ultimately, this can lead to their own pride or hubris costing them and those they advise significant sums of money.
Even the “experts” are wrong most of the time. In a classic case of “couldn’t be MORE wrong”, late in the year in 2007, in an annual Barron’s survey, 12 prominent strategists were questioned about what they thought would be the course of the economy and the market for 2008.
First, not a single one of them predicted a recession even though we were already in a recession at the time of the survey (December 2007). Second, their ending estimates for the S&P 500 were between 1525 and 1750. The S&P 500 closed 2008 at 903.25. That’s an embarrassingly huge miss!
Of course, it would be a bigger shame if they managed or advised others based upon an unflinching adherence to their predictions. That’s a portfolio-wrecking miscalculation and strategy. And this isn’t just one “strategist”… it’s all of them.
It’s foolish, dangerous and most likely quite expensive to try to predict the stock market in any economic scenario. Of course, this doesn’t stop the pundits or the headline-seekers from attempting it. They must be doing it for the pure publicity… good or bad, it doesn’t seem to matter.
But for me, this is why it doesn’t matter what I think about the future. The good news is that when I’m stacked up against some of the greatest economists in the world, I figure I’ve got about the same odds as them as being right. The bad news is that those odds are somewhere between slim and none.
What to do?
I think that it is more important to imagine a number of potential scenarios and their corresponding courses of action. From this brainstorming session, you can develop a written plan for the future of your investments in a sequence of decision statements.
I’ve tried to do this with our investment portfolios. We have “rules” that we follow that indicate to us when to be in a market and when to be out of a market. We don’t guarantee results or performance, but we place an emphasis on putting in place the decision trees to try to avoid the large long-term losses that come along a few times during an investor’s life cycle that can wreck or alter a financial plan entirely.
Once these rules are in place, then truly does not matter what I, you or anyone else thinks about the market. If it’s good, we’re in. If not, we’re not. Very low stress.
Why It Doesn’t Matter What I Think About The Market Read Post »
When I work with people about their finances, it usually ends up not being about JUST finances. There’s so much emotion wrapped up in how we view money that we end up working on an assortment of financial, emotional and behavioral issues.
Together with our clients, we are on a quest to find a combination of working / saving / spending attitudes that allow folks to not only work toward being able to retire before they need to, but also (and this is a biggie) to be able to live a happy, healthy and fulfilling life along the way.
We encourage everyone to consider building a strategy that will allow them to retire early. Although many clients are perfectly happy in their professions, (some even wishing to work well into their 70s) we still encourage building an early retirement strategy for two main reasons:
One, having built a plan to reduce or eliminate your financial dependence on your paycheck can actually increase enjoyment. I like to call it the “Johnny Paycheck Effect”. For many, being able to tell the world (or your boss), “You Can Take This Job and Shove It” can actually make it easier to enjoy your career. It can cleanse your emotional palate, lessen the chance for burnout and allow you to view your daily routine as more pure. Helping others, volunteering, achieving objectives, building something of lasting value etc. are all pursuits typically more fulfilling than the purely selfish pursuit of a paycheck. Thank you Johnny Paycheck.
The second major reason is the unpredictability of life itself. It’s possible that despite your best-laid plans, life just won’t allow you to execute them as you’d desired. A health crisis or injury to either you or a spouse can wreak havoc on even the most thoroughly planned strategy. By having an “early retirement” plan in place, you can use it as an escape hatch to a life that you could not have imagined years earlier. Maybe you won’t ever need it, but having the plan in place can make your life between now and then significantly happier and less stressful.
Everyone will need to design an early retirement plan that suits their particular situation. Both now and in an anticipated future. It’s not always about building a specific nest egg amount to insure a happy early retirement. Many early retirement plans we’ve constructed with clients involve some low-impact consulting income for a couple of years after full retirement, or a part time job in a completely unrelated field to help with the transition, or even a complete lifestyle transition to make it possible. Most importantly, it helps to think out of the box by reminding yourself that it’s not always about the money.
According to newly released data from Allianz Life’s 2014 LoveFamilyMoney study, there are six major traits that people who’ve fully developed and implemented early retirement plans have in common… and some of these traits may surprise you. Happily for most clients, coming from a life of privilege is not among them.
Have a happy marriage. Early retirees tended to describe themselves as in sync with their spouse. Some 76 percent of these people were married, compared to 68 percent of the people who never planned to retire, and they were also more likely to be in their first marriage. And 90 percent of early retirees found it at least somewhat easy to talk about money with a spouse or significant other, well above the 77 percent of people planning to never retire.
Appreciate what you have. People planning to retire early were significantly more likely to describe themselves as wealthy or financially comfortable, but that can depend on your perspective too. I’ve worked with a number of clients who struggle with drawing the distinction between being appreciative for what they have and complacency. They can be under the assumption that being appreciative of their present situation is akin to giving up or ceasing to strive for further success. Nothing could be further from the truth.
Follow your parents’ example. The would-be early retirers in the Allianz Life survey were more likely to compare their financial situation to their parents’, with 21 percent of them doing so, compared to 14 percent of those not planning to retire. They also tended to emulate their parents’ money behaviors. Of course, for this one to have a positive effect, you need parents who were or are fiscally responsible.
Teach your kids about money. Only 14 percent of people planning to retire early taught their children about money and finances, but that was well above the 6 percent of people not planning to retire who did so. Boomerang kids and supporting adult children can decimate your retirement nest egg. Better to prepare the kiddos from an early age to be self sufficient.
Save the drama for your mama. Having a fairly calm financial life also seems to encourage people to plan early retirement. Some 46 percent of those people said they had not experienced financial hardship as an adult, versus just 31 percent of those planning to stay in the workforce.
Plan for the worst, hope for the best. On the downside, early retirees were more likely than other workers to worry about dying young. Only 47 percent of them worried about running out of money in retirement, but 53 percent worried that they would not live long after they retired. But don’t sweat it, the good news is that leaving the workforce won’t hasten the process.
With some out of the box thinking to help build an agile financial plan, while adopting as many of the above traits as possible, you should be well on your way to an early retirement.
How to Retire Early Read Post »
I got my start in financial services as a broker in the age of Gordon Gecko and the “Greed is Good” mentality. Although I did have a monogrammed shirt and suspenders back in the day, I did not find a lot of the advice that was passed on to us as brokers especially helpful for clients. It certainly wasn’t selfless, that’s for sure.
A lot has changed since those days, but one piece of advice that I got at the very beginning of my career has stuck with me to this day. The advice was that my life and my level of success in life would reflect my clients’.
I’ve noticed that over the years, this has become pretty true, although ultimately it’s a bit of a “Chicken or the Egg” question.
But, it does make me realize that many of the same financial decisions my wife and I are facing are probably the same financial issues that many of you are facing. One of the nagging questions that we’re faced with all of the time is the need to balance a bit of on-hand emergency cash with the need to continue to put money away into various longer term investment strategies and tax free or tax deferred options (IRAs etc.), or preferably both.
The idea that I want to stash cash into a tax deferred growth environment is appealing, but if I put too much in and need to pull cash for an emergency, I’ve shot myself in the foot. If I leave it in savings or our checking account for very long, I shoot myself in the other foot: Keeping balances in cash that you don’t ever use is very expensive over the long term, both in the erosion of it’s purchasing power and the opportunity cost versus investing it.
I’ve come across a couple of ideas that seem to offer the best of both worlds: The ability to stash possible excess cash in tax advantaged accounts AND the ability to access it should an emergency arise.
Roth IRAs
It’s easy to turn your nose up at a Roth IRA because the contributions are not tax deductible. Many CPAs don’t think to routinely recommend them to their clients because they are typically having conversations during tax time and clients are seeking ways to lower their tax bills now, not later.
The basics of Roth IRAs are that you can put money into them and the money will grow TAX FREE if you wait to access it until you’re 59 1/2. Roths differ from regular IRAs because in a regular IRA you have to pay taxes on the money you pull from it (after 59 1/2) as if it were ordinary income and you must start withdrawals from your IRA at 70 1/2 and you NEVER have to withdraw money from your Roth IRA if you don’t want to.
But, here’s the “cash-stash” secret… Most people don’t know that you can withdraw up to the amount you contributed to your Roth without a penalty and without paying income taxes on it. This brings the anxiety level about having adequate emergency reserves way down if you use a Roth IRA as a cash stash. Why not grow the money long term, tax free, think positively and anticipate that you won’t need it?
Here’s another “cash-stash” secret about Roth IRAs: These things are GREAT for retired folks who are still generating income or whose investments or mandatory IRA withdrawals provide in excess of what they need for living expenses: You can continue to contribute to a Roth IRA forever and you never have to pull it out. Pull the money you’re required to pull out of your IRA and stash it in your Roth. Bam.
There are income limits and annual contribution limits. I’ve summarized and simplified the details, but you can find the details at http://www.irs.gov/Retirement-Plans/Roth-IRAs or you can call me and we’ll make an appointment to go through the details together and investigate how it relates to your situation.
Health Savings Accounts (HSAs)
Chances are that you’re not hearing about HSAs from your other advisors or your accountant. I think that’s because there’s no real vested interest for anyone to help you set up one of these accounts. In most cases, these accounts are set up at your local bank. Some have some investment options available, some do not.
But, if you make the assumption that medical bills (either now, or most likely later) will eat up at least some of your savings, you might as well save it in the right “bucket” and for many this can be an HSA. Contributions (up to $6,550 for couples this year and $3,300 for singles) are pre-tax. Money grows tax-sheltered, and withdrawals for medical expenses are tax-free.
Your health plan has to be a high-deductible plan and in most situations, this is at least $2,500 for families and $1,250 for singles, to be eligible. The average deductible on a typical employer-sponsored plan is now at $1,850 for families, so more and more of you are qualifying.
Here’s the “cash-stash” secret: You don’t have to use your HSA for medical bills if you don’t want to or don’t need to. You can use it as an additional retirement funding tool because once you are eligible for Medicare at 65, the purpose behind your HSA goes away and the government disallows further contributions. Although you can still use it for the rest of your life to cover medical expenses, you can also use it to fund your retirement lifestyle. You have to pay taxes on distributions just like a regular IRA, but there is no penalty and no required minimum distribution at 70 1/2. Neat.
Here’s another secret: You can fund your HSA from your traditional or Roth IRA if you want to. Let’s say you have some medical expenses and you don’t have an HSA yet and you don’t have the cash on hand because you stashed a bunch in your Roth. What to do?
You are allowed a tax-free funding withdrawal from your IRA to an HSA. You can only do this once in your life and you can only do it up to the amount that you could contribute to your HSA annually. But, this can significantly reduce “cash-stash” anxiety by knowing you have another option if you get caught short-handed on emergency cash.
There are all kinds of rules that need further clarification if you’re to consider this… but on balance it’s definitely worth your time. I’ve summarized and simplified the details and you can find the link to the IRS details about all of the rules at http://www.irs.gov/publications/p969/ar02.html#en_US_2014_publink1000204020 or you can call me and we’ll make an appointment to go through the details together and investigate how it relates to your situation.
I hope you’ve found these tips helpful. Here’s the link to get a peek at my availability and schedule a quick phone call: https://www.timetrade.com/book/VNTL6
Have a great holiday weekend,
Jeff
Secrets of Stashing Cash Read Post »
