Financial Planning (yawn)

Financial Planning might be one of the more boring phrases people hear. For some, the thought of it is downright terrifying. And with good reason; thinking about retirement is scary and trying to organize your household budget is a daunting task for many. Some people are fortunate and born organized. But for the rest of us, we’d rather clean out the garage. As with many things now driven by software, financial planning has come a long way. In the ‘80’s and ‘90’s, planning was done with what we’d now call a spreadsheet. It was all manual and it was largely out of date within weeks of its completion. Most planners worked on commission and for many, the plan was the vehicle used to sell expensive (and often poorly performing) products. Well, planning has come a long way. 

What are some of the issues a plan addresses and why would you need one? For most investors, a solid financial plan addresses the question, “Will I outlive my money?” First and perhaps most importantly, don’t wait to start the planning process until retirement is right around the corner. The earlier you start the process, the greater your chance of success will be. It begins with “discovery”, or getting answers to the following questions:

  1. Do you have enough money saved for retirement?
  2. How much money do you have coming into your household?
  3. How much do you have going out?
  4. How much income will you require in retirement?
  5. Where will it come from (social security, pensions, investment income, etc.)?
  6. What will your cost of living increases look like in retirement vis-a-vie inflation?
  7. What strategies do I need to consider that I am unaware of (reverse mortgage, relocation, etc.)?
  8. What impact does working two more years or a P/T job have on my retirement?
  9. How much risk is appropriate in my investments for someone like me?
  10. Can I afford to help loved ones when I’m retired or after I’m gone?

These questions and several more along these lines are the basis for “holistic planning”, or addressing the investor’s situation in its entirety. Anyone who holds themselves out as a financial advisor should be offering this service. Otherwise they are simply salespeople or brokers. As of this writing, the Securities and Exchange Commission is putting the final touches on its definition of an “advisor”. If they follow the leads of the U.K. and Australia, they will consider advisors to be fiduciaries who work on a fee-basis and all others to be salespeople who are held to a lower “suitability” standard. Fiduciaries have a legal obligation to place their client’s interests above their own. Real financial advisors act as a personal CFO if you will. Planning is labor and time intensive but we contend that it’s more important to the client’s success than the investments themselves. 

How is it you expect to arrive at some end point (retirement) without a map to get there! What pivots must you make when life throws you a curveball? Have you considered all the decisions you need to make in case of sudden forced retirement, unexpected health issues, old relationships ending, new relationships beginning, grandkids, relocation…the list really is never ending. These decisions shouldn’t be made ad hoc. They should be contemplated in advance with the input of an experienced, unemotional, trusted third party. This way when the unexpected occurs, you have a frame work in which to make a decision.

The Other Side of Irrationality

Irrational is too strong a word but it’s one we read about in (behavioral) finance quite a bit. Investors that panic sell in bad times or that expect unsustainable high returns forever in good times are not irrational. In fact, we can see how they come to their decisions. There’s a difference between irrational and uninformed.

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Never Mind The Noise

Investors are all too often distracted by noise in markets. "Noise" is actually an statistical term to describe "unexplained variability in a data sample". Yet Wall Street gurus are ready and willing to offer explanations ad nauseam. Our wise colleague Harvey Seigel, offers his take... 

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A Higher Calling

Are you associated with a not-for-profit organization? Maybe you volunteer some of your time for a cause about which you feel strongly. If you don’t do something along these lines currently, you may very well find yourself in this position in the future. Save this column for that time as it can help you understand the great responsibility that comes with stewardship.

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A Column for a Rainy Day

In 1997, my colleague Harvey Siegel in our Lenox, MA office, wrote about market volatility. He cited the fact that from 1990 through 1997 the US stock market (S&P 500 index) gained 300% and that investors should not expect a move like this to continue unabated. After all, market volatility is the price we pay to get the market return. Due to market gyrations last summer, Harvey and his partners, Ed Richter and Barry Wesson, revisited that column. Considering the past few week's market moves, I thought it deserved yet another look and it's re-posted here:

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The "Smart Money"

Harvard has begun exiting a large investment made six years ago in natural resources. Much of these investments were made outside the U.S. as in Central American teak forests, Australian cotton farms, a eucalyptus plantation in Uruguay, and timberland in Romania. The endowment thought they could take advantage of growing demand in scarce resources around the globe, particularly in emerging markets according to former head of Harvard’s endowment, Jane Mendillo, in a 2012 Bloomberg interview. In the past year the endowment has written down the value of its global natural resources portfolio by $1.1 billion. Over the past 10 years the fund has returned 4.4% on average. Contrast those returns with a simple buy and hold 60% stock and 40% bond index portfolio (rebalanced annually) that returned about 6.5% over the same time period.

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Points and Percentages

A quick note for investors concerned about recent volatility in the stock market. That’s what a blog is good for (maybe), right? On January 26, the Dow Jones Industrial Average reached 26,616.71. The S&P 500 index reached 2,872.87 that same day. On February 5th, they closed at 24,345.75 and 2,648.94 respectively. On February 6th as I write this, the averages are back up. That’s around an 8% drop in short order.

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Turmoil

Turmoil. An investor asked me if I was concerned about the “turmoil in Washington” and its effect on markets. I asked him, “When hasn’t there been turmoil in Washington?” Or in the Middle East…North Korea…Russia…Venezuela…you get the picture.

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Death and Taxes

From time to time this blog will invite guest columnists to weigh in. Today Harvey Siegel, Senior Financial Advisor and colleaugue at Apella Capital in Lenox, MA shares his thoughts.

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An Exercise in Humility...and a Promise

As 2017 comes to an end, so now begins the painful process of self-examination amongst Wall Street’s finest prognosticators. I entered this industry as a management trainee with Paine Webber in 1983 (ugh). Since that time I have noticed that Wall Street engages in a tortuous ritual where market experts make predictions on how various markets will perform in the coming year. I don’t recall when the financial print media actually began tracking and holding them accountable but it took far too long. And it doesn’t appear to have spread to the financial news shows on TV – the same tired hacks keep shooting their mouths off while the networks pay scant attention to their track records. I mean, what’s the media for?

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Scams, Schemes, and Rip-offs

I don’t know why I’m still a bit surprised every time I read about an advisor stealing from clients. I suppose it’s because I’m “in the business” and I can’t fathom anyone falling for the lines these advisors use. I forget that a smooth talking advisor can make just about any “investment opportunity” sound great and coupled with the abuse of trust they’ve established, the client is often beyond saving.

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Due Diligence

Due diligence. We hear this term all the time in our industry and I’m sure other industries use it as well. Here in our headquarters that houses our two firms, Symmetry Partners and Apella Capital, we host due diligence visits frequently. Visitors are independent financial advisors learning about our offering or our own advisors bringing their clients and prospective clients to learn more about the firm(s). We schedule a half or full day of presentations and meetings with department heads and key personnel. The goal is to demonstrate our capabilities in investment management, financial planning, and associated services we offer.

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How To Be A Successful Investor

I’ve spent the better part of 23 years teaching people how to be better investors. I do it through educating and coaching. In hindsight it seems easy, common sense really. But when I speak to investors, I realize all over again how badly our educational system failed them. Not in a classic liberal arts or the sciences way but in how to be a financially literate functioning adult. I think the world of teachers. I have a sister who teaches and my father was a teacher before getting into finance. It comes quite naturally to me. I enjoy being in front of an audience and sharing what I’ve learned with them. If there’s one thing I do well, it’s communicate often complex topics in understandable ways. But our educational system fails us in preparing young adults to handle the money they are about to start earning as they embark on a career or trade.

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The Timeline of Terrible Things

What a great title for a marketing piece. I’m not sure who came up with the name, but it’s direct and to-the-point, is it not? It’s a simple concept really: create a timeline over the past few decades or so and point out those events that frighten people along the way. For example, WWII, the Cuban missile crisis, inflation in the ‘70’s, the crash of ’87, the Asian contagion, the crash of 2000-2002, the ’08 crash and so on. These are but a few examples of events that caused investors concern, and who can blame them? This particular timeline isn’t a straight line however. These events are superimposed on the Dow Jones Industrial Average or the S&P 500 to illustrate one message: that despite the constant presence of reasons NOT to invest, markets have gone in one direction over time, up. Why is that?

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Computers, Algorithms, Robots!

Self-driving cars, automated assembly lines, roombas(!), robo-advisors…where will it all end? I actually saw a national news story this week about robotic pets. Robot dogs to be precise. Talk about a responsibility-free relationship! (Don’t you wish everyone had an on/off switch?)

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Performance

I have discussions with advisors all the time about portfolio performance – more specifically about recent portfolio performance. I almost never have conversations (longer than five minutes) with clients about recent portfolio performance.

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Common Sense

I've spent a lot of time in the business of managing portfolios, making investments, trading securities, researching strategies, etc...over 34 years now. And it can be made into the most confusing, esoteric, and complex process imaginable. For nearly a decade, I was sucked into this world of esoterica. I was impressed by how complicated an investment strategy could be. Then I had a conversation with a man named Paul Sarnoff. He was a very highly respected commodities trader in the '70's and '80's. I was a floor trader for a major brokerage firm at the time - I was one of those people that stood in a trading pit and yelled at the top of my lungs trading gold and copper for the firm's brokers and clients. Paul ran commodities funds and he would frequently call us on the floor to get a feel for how the trading day was going. On one particular occasion, he sighed and lamented the tough market he was in at the time. He had been doing poorly (as all traders do from time to time) and he was near the end of his career I think. In a moment of candor, he said to me that it was all a crap shoot...and that he didn't understand "the market" anymore. By that, he was referring to the gold market. 

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Shelf Space

When you go grocery shopping at your local supermarket, chances are the products you see on the shelves paid for that space. And those products at eye level paid a premium. It's called a slotting fee. What usually comes as a surprise to investors is that the investment product being pitched to them by their financial advisor typically pays this fee. Some larger investment firms sell proprietary products through their advisors. These are also pushed hard because the firm makes more money off of them than when using a third party solution.  

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A Sacred Trust

My sister, Robin Sweeny, saw Dan Wheeler speak many years ago and this stuck in her memory. She reminded me of it recently and said I should write about it to communicate how we see the advisor/client relationship. Dan calls it "A Sacred Trust." The industry has suffered a poor reputation for so long, I feel, because this is never made clear to prospective employees much less to the investing public. Unfortunately, the reason many young people originally got into this business was to make a lot of money. The fact that you potentially get to make a positive impact on people's lives never entered the equation. The running joke when I was interviewing on Wall Street in the early 80's was just say that you were "hungry" to the interviewer to score points.

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Inaugural Post

"Write a blog!", they said. "It'll be great!" So here it is, my inaugural post. This would be a good time to educate readers about my perspective, my biases. Our past experiences need not define us, but probably shape who we are, who we become.

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