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Monday, December 21, 2020

Fiduciary Advisers Who Offer Insurance Products Are Just Out To Make Money

Just to be clear, this blog is about Financial Myths and the name of this post is indeed a myth.  Or can be.  There are "advisers" who sell insurance products in the absence of a financial plan in order to make a quick buck.  But at prevailing money management fee rates (1.02% as of 9/2020)
an adviser would make twice as much over a ten year period selling asset management vs. an annuity for example.
As this article points out, "selling" insurance products is a "hot-button" issue, unjustifiably so.  The celebrity "advisers" (hack, gag) often use this as a deal killer, "run in the opposite direction" they say, if your adviser offers annuities or life insurance.  Unfortunately, life isn't this simple.
A true fiduciary recognizes the importance of risk management through transference of risk, the law of large numbers, and risk pooling.
Risk management starts with identifying, measuring the impact of and weighting a client's existing and future risks.  Then the practicality and cost effectiveness of solutions are explored.  Then the practical and cost effective solutions are implemented.
Which involves transference of risk, normally to a legal third party such as- for example -an insurance company or options seller thereby taking advantage of the law of large numbers (as the size of a statistical population increases, its behavior and outcomes become more precisely predictable) through risk pooling (combining resources with others on a mass scale).
It is impossible to be a fiduciary and ignore or- worse -disparage well-proven yet boring actuarial science.

Your Constructive Comments are Welcome!

Wednesday, September 23, 2020

ESG Funds Are Having a Moment - What It Means for the Modern Investor

CNBC recently published an article articulating the rise of investing in companies that rank highly on environmental, social and and governance (ESG) factors during the COVID-19 outbreak.

Interestingly enough, these funds were already experiencing big growth before the COVID-19 outbreak, with assets having doubled over the last two years.

In the video below, I articulate my thoughts on this rising trend.

Your Constructive Comments are Welcome!

Monday, August 31, 2020

MYTH : Trump's Social Security Tax Holiday Will Help Employers and Their Employees

The United States Capitol Rotunda

Well, this is a solid myth, that's for sure.  Smart and ethical CPAs are recommending that their clients not just walk, but sprint away from the Memorandum Deferring Payroll Tax Obligation.  Let me preface this by declaring that I'm not an attorney and that all of this is my opinion.  But I can read and think. 

First, a little background.

The current IRS Commissioner is Trump appointee Charles Rettig, who, during his confirmation hearing, "told lawmakers he would ensure that the agency is 'impartial and non-biased from top to bottom' and follows the law."  

This seems unlikely, given that Rettig's Beverly Hills law firm specialized in defending wealthy clients against taxing authorities.  Since taking over the IRS, Rettig has slashed 4000 employees, including 19% of enforcement and compliance staff.  Like every single other Trump appointee, Rettig was selected for his ability and enthusiasm to vandalize the very agency to which he was appointed.

So Trump's Memorandum Deferring Payroll Tax Obligations allows any employee with bi-weekly pay of less than $4000 to defer paying of their 6.2% share of Social Security tax.  This appeals to two kinds of Trump supporters:  the wealthier ones who hate Social Security and, including this group, the less well-off supporters who hate taxes and government in general, despite all the benefits they enjoy as a result.

The key word here is "deferring".  What could make this tax easier to pay in the future?  Some tax people are rightly claiming that only Congress has the ability to waive such taxes.  But they've already granted that right to the President in the event of a national emergency, which Trump declared in April due to the [fake, according to him] pandemic.  

In fact, it will simply put employers at risk of fees and penalties.  On top of that, I've seen nothing in the regulations that prevents employers from going after former employees for reimbursement. According to our Senator & Senate Finance Committee ranking member Ron Wyden, "Donald Trump's scam is obvious — juice paychecks before the election and sock workers with a massive tax bill early next year when he’ll be out of office or never have to face voters again. While many businesses are unlikely to go along with Donald Trump’s fake tax cut, billions could be drained from the Social Security trust fund. This scheme is designed to give Donald Trump a talking point — it won’t benefit workers in any way.”*

Whether you're an employee or an employer, don't be seduced by this nonsensical campaign trick.


*Thanks to Think Advisor for their excellent article on this and choice quotes.

Your Constructive Comments are Welcome!

Wednesday, August 26, 2020

Karl Marx, Jay-Z & SGI Funds have a lot in common

Usually the title of these posts IS a myth.  But believe this one is true.  Where did I come up with these seemingly completely unrelated topics?  Oddly, they were in the top 10 financial search words last month.

Karl Marx

Karl-Marx-Monument in Chemnitz
Karl Marx Monument in Chemnitz

First, what he was not.  Marx was neither Russan nor capital-C Communist, despite having written The Communist Manifesto.  He was a law student from a wealthy Jewish family headed by his attorney father.  I'm guessing his unpopularity with the authorities from whom he fled Germany, France & Belgium was due to his central belief that theology would eventually succumb to philosophy.

A prolific journalist & author, Marx was admirable in his focus on fair & efficient political and social processes (such as his belief in a "constitutional republic with freely elected assemblies".  Like I, he felt wealth and merit needed to be reconnected, without which there would be constant struggle between the economic classes.


Streetart in Katoomba

The first hip-hop billionaire, Jay-Z (aka Shawn Corey Carter) holds the fascination of millions around the world.  We obsess over our billionaires, that's for sure.  But as perfectly stated in this recent USA Today article, Jay-Z epitomizes what every investor should emulate:

1. Diversify across several sectors and industries.  Jay-Z has his own champagne and congac brands, sports promotions, investments in fashion, Uber & his own Uber-like jet sharing app as well as his own venture capital firm

2. Invest in what you know and love.  This is important because if you don't love your work and your place in the world (e.g. your investments) you probably won't be motivated to put in the effort and commitment necessary to be successful.

3. Commit to your goals.  Not everyone can be a billionaire.  In fact, hardly anyone can be.  I would restate this as "pick goals that inspire your commitment".

Would Marx have liked Jay-Z?  I think so.


Experiencing heavy in-flows of new capital, ESG funds mirror the growing awareness that sensible and ethical companies are more likely than the liars and cheaters to flourish in the future.  ESG stands for Environmental, Social and Governance & the funds and companies that pass those screens.  

ESG is supposed to be a more evolved, stringent screen than SRI (socially responsible investing) or sustainable investing.  Here's what they mean, in a nutshell:

  • Environmental- conserving, protecting and even enhancing local and global natural environments
  • Social- treating employees, clients, partners and the communities in which the business operates with respect by following the law, providing quality safe products & services, & contributing to the needs of local communities.
  • Governance- operating in a compliant, equitable and transparent manner.

So I find it encouraging that people are interested in these three topics.


Your Constructive Comments are Welcome!

Sunday, June 7, 2020

The Power of Peace

There is a surplus of anger, desperation, futility, depression, fury and isolation in our country right now.  It's the worst I remember, even during the Vietnam debacle.
I've advocated- rather unpopularly -that peaceful resistance is the most powerful and effective response to the sources of these intense emotions.  Steeped in affluenza, racism, fascism, nationalism and all the other sick isms, if we're not furious then we're not paying attention.  I don't need to catalog all the evil things done to whom by whom; we're deluged with that.  The fury is justified, OK?  So when I say to someone that peaceful resistance is more effective than violence (bodily injury and property damage) what they hear is negation of their fury, denial of their despair, minimizing of their suffering.
That isn't my intention.  As Erica Chenowith's research proves, peaceful resistance has been more than twice as effective as violence in creating change.  She studied all such events, worldwide, since 1906 to reach that conclusion, causing a 180 degree pivot in her former beliefs.  Please read her material and watch her TED talk:
I don't know about you but I don't recall ever making a good decision in the middle of anger.  Granted, anger is an action emotion, an indication that action is needed.  It is a great motivator while being an abysmally poor judge of right action.  Right action takes all of our faculties, our anger, our hearts, our minds, our relationships.  And that's why violence doesn't work:
  • Violence severely limits who can and will join you in your rebellion.  Why not adopt a strategy that can involve children, our elders, the reticent, first-time activists?  "Many people won't turn up unless they expect safety in numbers" (Erica Chenoweth)
  • The border between oppressors and the oppressed is wide and gray.  A cop may refuse to shoot rubber bullets into a peaceful crowd if he knows his daughter might be there.  Even the most corrupt enablers of dictator wannbes have families, friends & associates who love (and fear and or hate) them and eventually garner the courage to speak up and act out.
  • As a result of these two factors, nonviolent campaigns are four times larger and much more inclusive & diverse than violent ones.
Your Constructive Comments are Welcome!

Monday, April 6, 2020

6 Financial Steps You Should Consider NOW

Would you like to know why I've gotten zero freaked-out calls or emails from my clients because of the coronavirus, political upheaval or [insert your own freak-out factor]?  It's because we've already tested even worse scenarios (like the 2001-2003 recession) in their written retirement financial plans and they know they will be OK. 

However, that doesn't mean there aren't new opportunities and cautions:

1. If we have not developed your written retirement financial plan then get yourself on my schedule immediately.  I've opened my calendar up as much as possible for the next three weeks.  Call me at my mobile at 503-698-1110 or simply schedule yourself here:

Key Takeaway:  No matter what is happening in the world and in your life, there are risks to avoid and opportunities to acquire.  These risks and opportunities should be tested and executed carefully, as part of an overall plan, not by running out and buying four thousand rolls of toilet paper.

2. To make up for losses in the market-based portion of your portfolio, don't settle for inflation losses in your cash.  You should be getting at least 2.0% on your two-year money.  I've seen savings accounts paying as little as 0.07%.  Yes, seven hundreths of a percent. Increasing earnings and other benefits on your safe money will help offset these short-term fluctuations in the market and make dramatic long-term differences in your future cash flow. 

3. Does it make sense to refinance debt?  Probably.  Interest rates have tumbled with the market & I doubt they will increase this year.  Refinancing may be a great way to reduce your budget and preserve your savings

4. Is funding for your lifetime budget locked in?  If not, wouldn't that be worth finishing up?  Then you can ignore market hysteria.  Cash flow solves all other financial problems.

5. Do you need to put off that expected retirement date this or next year?  I won't sugar coat it; maybe you do.  But how do you figure out when you can retire?

6. Finally, taxes will probably shrink your money more this year than will the market.  What tax planning have you done?  Did you know the tax issue will become even more concerning in 2026 when the Tax Cuts and Jobs Act expires?  I don’t see any of my peers doing tax planning.  Maybe this is the perfect time to do Roth conversions or in-kind conversions of poor performing stocks.  When the market recovers, all the gains can be tax-free.  This video is pending my review of the three “stimulus” packages.  Lots of little- and not so little -goodies for everyone.

Warm wishes during these trying times,
and get yourself on my calendar!:


Your Constructive Comments are Welcome!

Sunday, March 1, 2020

MYTH: The Markets are Crashing due to Coronavirus

I don't believe this post heading at all.  Although I'm firmly in the camp that says we should do all we can to isolate and stop the spread of this  deadly virus, correlation is not causation.  Eugene Fama's efficient market theory went out the window with the Reagan presidency, that is, the belief that full information about all market options are relected in its pricing, among other things.  I would wager these days that very little rational information is reflected in asset pricing.  Rather than knocking the wind out of the markets, the coronavirus is an excuse to get hysterical about an over-valued market.
Markets have periodic corrections of investor hyperenthusiasm.
Your Constructive Comments are Welcome!

Thursday, January 9, 2020

MYTH: Bitcoin is a Good Deal

Well, I think this is a solid myth.  And I'm not going to go on and on and on like most financial blogs you see today; volume does not equal value.
Here is the rub, as I see it:
  1. According to BitFarms (BITF), their breakeven cost of mining one bitcoin is US$2,259.  
  2. Today, one Bitcoin is worth US$7,785.
  3. At one point in 2018 it was worth nearly $20,000.
  4. Revenue per terahash (a measure of computing speed) has fallen from $4.00 two years ago to about $0.13.  That speed requires expensive hardware and electricity.
In summary, I don't know how long the public will continue overpaying for something so volatile.  If prices are driven back up it will be primarily due to investor delusion not due to any fundamental value.

Your Constructive Comments are Welcome!