Search This Blog

Wednesday, December 19, 2018

There Oughta' Be a Law! (repost)

I'm reposting this financial mostly-a-myth because of the recently and rapidly growing list of "mistakes" made by our president and virtually every one of his inner circle.

I confess that my first reaction to outrageous behavior is, "there oughta' be a law!".   One way I attempt to keep up with the times is to watch TV about once a week, usually a news program on Sunday morning.  Holy cow!  A dozen "there oughta' be a law!" incidents come up in 15 minutes (so far, my upper tolerance limit), most having to do with advertising:

  • Gambling is portrayed as entertainment, showing idiotically grinning couples.  I've never seen people smiling in a casino, have you?  There oughta' be a law against these ads.
  • Drugs are also paired with happy, healthy actors who, in reality, will probably never need a prescription in their lifetimes.  Drug ads should be illegal.
  • Fashion is advertised as an essential source of happiness, acceptance and, well, evolving as humans!  A top fashion consultant admitted that he doesn't follow consumers' fashion desires, he manufactures them.  There oughta' be a law.  (But in my case it's obvious I don't follow fashion.)
  • Food.  If you just look around it's apparent that Americans get plenty of food.  Yet billions are spent daily trying to get us to eat cheap, crappy "food".  Or food that neither our budgets nor our bodies can afford.  This should be illegal, just like hard liquor ads are.
  • Cars are a personal statement, instant evocations of status and coolness.  Oh.  And they can transport things and people.  But we need fewer of them, not more of them.  How are these ads any different than hard liquor, gambling, drugs or food?
  • Investing "porn" is everywhere.  Really?  You're going to plan out the rest of your life based on information from whoever spends the most money to catch your eye??  Where do they get all that money to spend on ads?  From your money.  There are rational, evidence-based rules & tools you can find online, most for free.  Finally, there are honest, wise and experienced advisers in your community to help you curate the deluge of money madness.  Investing & insurance ads should be illegal. 

But then, several weeks after our Nuevo Vallarta vacation, it dawned on me what had been different- and profoundly relaxing -about Mexico.  At the resort, what was it about the pool area, the weight room, the parking lot . . . everywhere that was so calming?  What was absent?  Then I realized there were No signs, no rules, no "Danger" or "Forbidden" or "Warning" placards at every turn.  It felt clean, quiet, uncluttered, adult.  They relied on the intelligence and character of their guests to make things run smoothly and so far it seemed to be working.

Wouldn't it be easier, less expensive and more effective to encourage consumers* to be smarter and more discerning ?  That's a transferrable skill.  It would make us all better citizens, parents, workers, entreprenuers and, yes, consumers.  Absolutely there should still be laws and enforcement of them.  But the path to perfect safety is more perilous and ultimately results in zero freedom under dictators.  Which is why our current administration wants to entice you down that path to make you dumber, more fearful and less tolerant, hence, easier to manipulate and control.

*And, in the vein of today's post, voters

Your Constructive Comments are Welcome!

Sunday, December 9, 2018

Straight-A Students Always Succeed in Life

Well, like practically any sentence with "always" in it, this is also a myth.
According to organizational psychologist Adam Grant, "If you succeed in school, you're not setting yourself up for success in life . . . academic excellence is not a strong predictor of career excellence"
Personally, I like this premise because I was a mediocre student during my K-12 years and, what is more, I didn't care either.  I agree with Grant that academic grades rarely measure qualities like creativity, leadership, teamwork skills, social/emotional/political intelligence.  He sums it up brilliantly, " . .career success is rarely about finding the right solution to a problem, it's more about finding the right problem to solve.
"This might explain why Steve Jobs finished high school with a 2.65 G.P.A., J.K. Rowling graduated from the University of Exeter with roughly a C average, and the Rev. Dr. Martin Luther King Jr. got only one A in his four years at Morehouse."

Your Constructive Comments are Welcome!

Tuesday, November 27, 2018

Families are Penalized by the new Tax Laws

This is a solid myth.  If you have children there is a substantial gift tucked into the Tax Cuts and Jobs Act of 2017, despite the record-breaking deficits and debt it is already creating.  Here are the details, straight from IRS.
  • Credit amount. The new law increases the child tax credit from $1,000 to $2,000. Eligibility for the credit has not changed. As in past years, the credit applies if all of these apply:
    • the child is younger than 17 at the end of the tax year, December 31, 2018
    • the taxpayer claims the child as a dependent
    • the child lives with the taxpayer for at least six months of the year

  • Credit refunds. The credit is refundable, now up to $1,400. If a taxpayer doesn’t owe any tax before claiming the credit, they will receive up to $1,400 as part of their refund.

  • Earned income threshold. The income threshold to claim the credit has been lowered to $2,500 per family. This means a family must earn a minimum of $2,500 to claim the credit.

  • Phaseout. The income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. This means that more families with children younger than 17 qualify for the larger credit.

Your Constructive Comments are Welcome!

Wednesday, October 17, 2018

You Get What You Pay For With Asset Management Fees

Well this is a solid myth.
At Fidelity's Inside Track conference in New York City this week, Ron Carson (of $10 bil. asset firm Carson Group) admitted as much by stating the assets under management (AUM) business is only worth 0.2%.  That is, if you have $1.0 mil. being "managed" by an adviser, you should be paying only $2000/yr for the privilege.  I come across people every week who are still paying 2.0%,  ten times 0.2%, or $20,000/yr on a million account per year.  The current average AUM fee is 1.22%, still more than six times what the advice is worth.

Your Constructive Comments are Welcome!

Wednesday, July 25, 2018

It Is Possible To Get "Neutral" Advice

In their 10-year-old easy-to-read book, "Nudge, Improving Decisions About Health, Wealth and Happiness", Nobel Prize winner Richard Thaler and Cass Sunstein describe "choice architects" (of which I am one) and the drivers behind their recommendations.
But before I give those details, in my substantial experience part of the impossibility of giving "neutral" advice is that there are no neutral clients.  If everyone I met with was fully informed, unbiased, realistic about the future and open to the best available evidence then indeed it might be possible to get close to providing neutral advice.
For example, I have taught many many classes on Social Security Optimization (the largest asset most retirees own) and Retirement Income Planning .  I collect evaluation forms after each class but before handing them out I practically beg for frank criticism, for contructive suggestions on how to improve the class.  Here are typical results:
  1. "The handout was too big" vs.  "You should have all the slides in the handout"
  2.  "Not enough specific examples" vs. "Too complicated"
  3.  "Felt like a pitch to buy annuities" [It is!  Absolutely!] vs. "More information about annuities"
  4. "Too long" vs. "Class needs to be longer".
  5. "Too basic" vs. "Too many terms I didn't understand".
  6. "very concise & well organized!" vs. "needs to be better organized".
And so on.  The classes are very carefully tailored and presented to convey maximum value to the largest number of attendees.  It still amazes me that people expect it to be perfect just for them. Because I diligently explain multiple times that the information is generic, may not apply to everyone, and that is why the free one-hour private strategy session is offered as part of the class.

For a minute, though, I want to talk about #3 above, specifically the annuity skeptics.  During class I can see their faces set as soon as the word "annuity" is mentioned.  A smug knowing expression descends.  It's not their fault.  They've been brainwashed by financial celebities whose self-promotion appears more important than providing evidence-based advice.  The one tried and true tactic (writ large by our current president) is to find things, for the people you're trying to manipulate, to hate.  This makes them feel like they're part of your tribe and you are protecting them.

Here's how that skepticism looks to me.  Since the #1 risk in retirement is outliving your money I feel like I have a gas station and these folks have pulled into my station unsure whether they have enough fuel in their vehicles to make it to their destinations.  I'm promoting fuel*.  They've heard gasoline is bad (well, gasoline is bad but I have yet to come up with a better simile).  Despite all the evidence, they cling to this myth even though they already have similar fuel in their vehicles that is working well (Social Security, pensions, muni bonds, dividends etc).  Nor do they have any better alternatives for extending the range of their vehicleIs this much different than growing up learning that skin color means something?

I follow the best evidence I can find.  I recommend that if you're 65, for example, ask your broker this, "If I give you $100,000 can you guarantee that in 10 years I'll be able to withdraw $10,000/yr for the rest of my life?"  There's no way to do it without annuities.

*in addition to checking the oil, tire pressure, fluid levels, warning lights, the vehicle's specifications to be sure the correct products are used, etc.

Your Constructive Comments are Welcome!

Tuesday, June 19, 2018

Not a myth this time: Did you buy Woodbridge notes?

 About 2-3 years ago I was pitched a very secure-sounding real estate play by Woodbridge.  It quacked like a securities duck, though, so I checked with the Oregon Dept. of Finance and Corporate Securities (now the Division of Financial Regulation)  to see if it was registered for sale here.  Nope.  So I sent them all the sales materials I had received and wrote it off as a scam.
Lo & behold, now Woodbridge is in Ch.11 bankruptcy & owes noteholders $750 mil.  So much for "secure-sounding".

Before moving money anywhere, be sure to check that the "anywhere" is at least approved by the appropriate regulatory authorities.  And insist on evidence that the recommendation is better than what you have now.  I do.

Your Constructive Comments are Welcome!

Monday, March 5, 2018

Your Eyes Reveal Whether You are Lying or Telling the Truth

 This myth is still being bandied about by "experts" in fields from management to law enforcement.  The myth is that if a right-handed person looks up and to the right while speaking then they are lying.  To the left, they are telling the truth.  This scientifically controlled study, however, showed no relationship between lying and eye movement.  Further, interviewers coached in this right/left theory were no better in detecting lies.  The best indicator was "excessive" hand movement. 
But even then, how would you know what normal hand movement is for the particular person in front of you?  Some people gesture a lot, some don't.  Does that mean people who dramatically gesture are lying all the time?  Of course not.
Lucky for me, when I'm searching my brain for a fact or figure while I'm talking, for some reason I glance up to the left.  It just feels like there's more there than on the other side (or I like to kid myself, anyway)  And I'm right-handed.  Since all of this is public knowledge, then anyone intent on getting away with lying could just change the cues they give you.  Even lie detector tests can be defeated.  The only reliable test is to verify, verify, verify.

Your Constructive Comments are Welcome!

Thursday, March 1, 2018

It's Impossible to Find Socially Responsible Companies

This is absolutely not true, as Sustainalytics demonstrates in this article that appeared in ThinkAdvisor magazine.  Socially responsible investing (SRI) has evolved into ESG investing which is more relevant, I think.  ESG stands for Environmental, Social and Governance (that is, corporate governance).  An ESG screen is proven to reduce future volatility.

(this link works for me but let me know if it doesn't for you)
Your Constructive Comments are Welcome!

Friday, February 23, 2018


I must confess at the outset to a bone-deep weariness of this pervasive myth.  It is dangerous.  It is ignorant.  It is inaccurate.  And, more importantly, it is self-destructive to the average investor. 
This myth compares quite aptly to racism and sexism, which are uneducated snap judgements of others based on sheer irrelevancies such as skin color and gender.  In the deep South a woman about to give birth may refuse the services of a black OB/GYN even though he is the best in town and even though his skin color is less relevant than the color of his shoes (it's easier to tell if white shoes are clean or dirty).  A brilliant marketing director may be passed over for a promotion simply because she is a woman in a good ole boy corporate network, to the detriment of the company.
I frequently am asked, "Do you sell [financial] products?" as if this is some magic passphrase to, in one fell swoop, assess my skill & virtue.  My answer is, "Of course I do.  All of them.  It is the only way to keep up on current innovations and features.  A great deal in the financial universe is not shared with the public nor is it shared in a timely manner.  I am beholden to no specific company or product or even type of product."  But somewhere the questioner read or heard that anyone who sells financial products is biased.  And it is true.  However, we are biased in favor of holistic plan construction and implementation.  What would you think if you invited a plumber to your house to put in a water heater and he brought no tools? Or water heater?
So I'm going to look at the various "adviser" types and show you that none are free of bias and conflict of interest.  None.  Keep in mind that most are genuinely honest, hardworking, highly educated and primarily concerned about improving your situation.
Fee-Only Advisers-  Well, "fee-only" can include % fees for assets under management (AUM) which, in my opinion, are really commissions.  The theory has been that as you do better your adviser does better.  But the converse is not true:  If you lose money, your adviser still does well.  Plus, the evidence is in that very few "managers" beat their unmanaged benchmarks.  None do it year after year.
Flat/Hourly Fee-Only Advisers-  The conflicts here should be obvious.  If you are paying a flat fee for a comprehensive plan and it turns out to be more work than the adviser expected then he may rush to finish.  Or not finish at all.  Conversely, there is great incentive for an hourly adviser to drag his feet and stretch out the engagement far longer than necessary.  I'm not saying this is common practice.  Not at all.  But it is a conflict of interest where the adviser's self-interest could subvert your best interests.
Commission Only Advisers- These could be life insurance agents, annuity agents, stock & mutual fund commissioned brokers and AUM brokers.  First the positive:  These folks are action oriented.  They will not allow you to take their plan and let it accumulate dust on a shelf somewhere.  Conflicts come in if they only work for one firm, specialize in only one product and/or don't have access to all financial products.  There may also be bias toward the highest commission products.  These conflicts and biases can be be minimized by the adviser providing evidence that the recommendations are the best he can find, thru side-by-side comparison.  You should also insist on evidence they are licensed fiduciaries.
"Free", Celebrity Advisers-  In their books, videos, radio & TV shows these "advisers" use a shotgun approach, scattering titillating financial tidbits that may or may not improve your situation.  Oddly, these are also the people who propagate irrelevant tests and evidence-free secret passcodes to sabotage their competition, the true professionals like myself.  They prey on our human tendency to wish hard choices were easy, as is the case when using skin color or gender to assess someone's virtue.  And, as entertainers, authors and "journalists" they are neither licensed nor regulated.  You can't look up their compliance history.

Having been in this business since 1978, I've experienced every type of compensation, all the way from being a salaried employee, through 100% commission to 100% hourly fee-only, to my current hybrid model described below  Here's the ideal structure I've settled on as being fair to me and, at the same time, in the best interest of my clients:
Fee Minus Only-  Never heard of it?  As far as I know, I'm the only one in Oregon with such a contract.  In a nutshell it says that I charge $250/hr. for a comprehensive planning process.  But if, as a result of implementing that plan, I receive 3rd party compensation then I reduce or refund the hourly fee, dollar-for-dollar.  What is the effect on you?
  1. You get the unbiased services of a holistic, fiduciary adviser who puts a great deal of work into learning about you and your situation, and, collaborating with you to improve it.
  2. I normally eliminate your risk of accumulating an unknown total fee by capping the number of hours for which I will charge.  This cap can't be changed without your written consent.
  3. If the best products and services for implementing your plan (and you're the one who chooses) pay compensation to me, then in effect a 3rd party ends up paying some or even all of your fee.  If the best products and/or services pay no 3rd party compensation, then I'm happy because I get paid well either way.  You're happy because your current and future costs are lower than with any other arrangement.
  4. Any and all conflicts are fully disclosed.
So yes, there are some key tests of whether an adviser will work for your best interests.  But they're not secret, they're not magic and they're not simple.  Here are the key questions to ask any adviser:
  1. Are you a legal fiduciary in this state?  How can I confirm that?
  2. What are your conflicts of interest?  "I don't have any" is the wrong answer.  Could you spell them out in writing?"
  3. Are you holistic?  If they are,they will use tools such as to learn about you as a whole person rather than an account balance.  Simply using a Risk Tolerance Questionnaire is woefully inadequate.
Hence, if you're not racist or sexist then work toward the same enlightenment when it comes to your finances.
Best Wishes Always,
Your Constructive Comments are Welcome!

Tuesday, February 6, 2018

The Dow's Largest Percentage Drop in History is Significant

Well, it isn't.  I would love to use scare tactics to convince all my fence-sitters to finally move their money.  But I refuse to exploit the worst two investor motivators:  fear and greed.  What I do seek for my clients is happiness, lack of stress & confidence in their future ability to meet their budgets.
Yes, the 1100 point drop was the largest in history.  But as you can see, it's an insignificant blip if you look at the long term.  However, this "blip" is equal to the entire value of the index in 1984.  See today's chart below.
How did we go from 1100 in 1984 to 26,000 in 2018?  Inflation only triples the 1984 value.  So in 1984 dollars the DOW is at 8112.  So the actual average annual return, less inflation, is 6%/yr.  Yet even in this frothy market we have billionaire asset "managers" projecting 11% returns into the future.
Be that as it may, how did this magic happen?  Are there prices we have yet to pay for this exponential curve?  I think so.  The market, far from being efficient and transparent is instead rather blind and mute . . . and developmentally disabled.  It doesn't see much farther than the end of the next quarter and it is unable to tell us about the things it can't see.  And it will never change because too many people profit [temporarily] from this pathology.
The markets & economic metrics (like the GDP) quantify goods and "bads" equally.  And it shorts us on the economic impact of both.  If an arborist is hired by a city to plant a row of trees downtown, the amount he is paid adds to the GDP.  The services the trees subsequently provide (cleaner air, surface water management, increased property values, habitat, happier people) are neither quantified nor counted.  If Exxon destroys an entire ocean gulf with an oil spill, and toxic chemicals to diffuse the oil to hide it, the cost of cleanup adds to the GDP.  Most of the real costs of Exxon's carelessness are deferred to the future.
So my point is that that steep curve has come with a hefty price tag, to our health, wellbeing, communities and the environment.  We just don't know what the price is yet.  As our data collection and analysis continues to skyrocket, I think we will begin tabulating and quantifying those costs and that should lead to better and more immediate pricing of both goods and bads.  And that should level out the DJIA for good.
How will you be affected personally by all this?  What should you do now?  Wouldn't it be important to get some ideas?  Request a meeting with me at

Your Constructive Comments are Welcome!

The Tax Cuts and Jobs Act of 2017 will boost 2018 economy

I don't know if this is a myth or not.  But I do know that piling on the Federal debt is an economy killer if done capriciously rather than as a recovery tool.  This time it's utterly capricious.
  • In anticipation of the trillion dollar manna from the Treasury that this bill will create, financial companies commit to lavish bonuses and raises for their employees, Hartford, Travelers, Money Concepts, Kingstone to name a few.  Will they share that largess in the form of premium decreases, higher interest crediting rates or less costly riders?  Will they warn their employees about the future higher taxes that will be necessary to keep the Treasury funded?  Does anyone recognize the key role the federal government plays in stimulating and stabilizing the economy?  Does anyone realize that these raises and bonuses are less than a drop in the ocean?  What do you think?
  • An expanded estate tax exemption ($22.4 mil. for a couple) will decrease the need for estate tax planning for most Americans.  So they'll be canceling, cashing in, or even selling expensive life insurance policies that were designed to pay the tax. 
    I mean what the heck.  If you're an only child, how could you possibly survive with less than $22,400,000?  It's wonderful that an American, regardless of merit, can acquire that kind of power by winning the ovarian lottery.  Isn't that why our forebears left Europe, with all its feckless kings, queens, dukes, duchesses, lords and ladies?
  • In a calculated stab at Blue states, the allowed deduction for state, local & property taxes will be capped at $10,000.  This will increase the outflow of federal taxes from states that are already donor states (pay more in taxes than they receive in benefits).

Your Constructive Comments are Welcome!