Mythological Suze Orman

Yes, Suze Orman is a myth, writ large.  And much of what Suze Orman says on Oprah.com is mythological.  I was especially taken aback by this post.  As far as I know, she hasn't changed her tune.  I almost hate to respond to it and thereby increase its exposure.  But I feel a professional and ethical obligation because this is dangerously harmful advice.

Q: My financial adviser suggested that I invest in index annuities. Are they safe?

Suze: I'm not a fan of index annuities. These financial instruments, which are sold by insurance companies, are typically held for a set number of years and pay out based on the performance of an index like the S&P 500. (Be advised that insurers aren't necessarily transparent about how they calculate any gains credited to your annuity.  [Yes they are.  In explicit detail]) They do offer a guaranteed return, but it can be under the rate of inflation, and there are caps on the amount of interest you can earn. Plus, if you don't want to keep an annuity for its entire term, you could lose 10 percent or more [I haven't seen a charge that high in decades] of your investment to a surrender charge. Honestly, I'd be suspicious of any adviser who wants you to go this route. Instead, I'd recommend that you stick to your workplace retirement plan, if you have that option. You can contribute up to $17,500 this year ($23,000 if you are at least 50). If you don't have a company 401(k) or you have more funds to invest, you can set aside $5,500 ($6,500 if you are at least 50) in a traditional or Roth IRA. [What if she's retiring?  Then she can't do any of that.]

I'm "not a fan of" any celebrity whose celebrity is more important to them than the innocent folks to whom they carelessly dispense flawed and incomplete advice.  "Honestly, I'd be suspicious" of anyone who isn't a fan of indexed annuities, especially these days.  Why do innocent consumers gravitate toward these financial entertainers?  This may be a clue:
https://getpocket.com/explore/item/why-do-people-mistake-narcissism-for-high-self-esteem

To be fair, let me list the True statements Suze makes above about indexed annuities:

1. ". . . sold by insurance companies" [which I suppose is intended to imply something negative]
2. They do offer a guaranteed return [the least important feature, actually]
3. it can be under the rate of inflation [yes, we can practically guarantee the fixed account return will be less than inflation.  We don't care, as I'll explain below.]
4. there are caps [yes, you're not going to get principal protection without fees or limits on benefits]
5. [there can be] surrender charge[s]  [The best contracts almost always have surrender charges.  That's how the company protects the risk pool.  A properly designed plan and allocation will not incur surrender penalties.]
6. The contribution limits were once accurate but not for 2023

But she never answers the question, "Are they safe?", instead going off on an ignorant diatribe ending in defamation of my profession.  (Which, by the way, she left in 1991 to become an entertainer.)  

My key points:

1. In the financial advisory business the key ethic is, "know thy client".  So, an ethical and intelligent response to that person's question would have been:

"Yes, they are safe- for multiple reasons -but why are you asking me?  You should be asking your adviser to explain how their recommendation fits into your overall plan, how they selected that particular annuity and what all the pros and cons are.  I know nothing about you, your goals, your financial situation and have no business telling you anything else.  But they are safe because they will protect you from the greatest retirement risks:  Longevity risk, inflation risk, sequence risk, and market risk.  But I'm neither licensed nor registered to give more than just general money advice [since 1991- see below from https://brokercheck.finra.org/search/genericsearch/grid"]

So here is my question:  Do you really feel safe taking advice from a person who isn't properly trained, licensed, registered and regulated, who knows nothing about you and apparently very little about the latest financial strategies?  Would you choose someone with 9 years of experience or four decades of experience?

2. Orman seems unaware that there are at least Two Stages to retirement planning.  Stage One is the Accumulation Phase, Stage Two is the Distribution phase.  She is stuck in Stage One.

Stage One is like a game of checkers with essentially two moves:  

• Save as much as you can every month.  
• And do it for a long time.  

But then in Stage Two it becomes a game of chess; there are many more moving parts, each with their own rules and strategies.  What if the questioner follows Suze's advice, goes all in the market and then loses another 15-20% this year?  And was planning to retire now??  Terrible advice.

She also seems unaware of functional asset allocation (Of course, that would necessitate spending a lot of time learning about the client and designing a plan.  Which doesn't work if your goal is simply mass appeal and self-promotion.).  At least these three functions must be planned for:

Most of us advisers refer to these as "buckets:

• The Liquid Asset Bucket- this is essential.  Unless you already have an emergency fund of 3-6 months' budget you have no business investing in the stock market.  I see this happening a lot right now (not among my clients):  You've put money in your 401k, have lost your job and have to raid your now shrunken 401k to meet expenses.  And pay extra taxes!
• The Income Bucket- This is the most important bucket, not because I say so but because in study after study retirement satisfaction and security are highest when the retiree has more than sufficient monthly lifetime cash flow.  The risk pooling and longevity credits of income annuities (typically supplemental income riders to indexed annuities) are virtually impossible to duplicate elsewhere.  I've put this challenge out a couple of times in the trade press:  Show me how you would guarantee equal or greater lifetime cash flow with $1.0 mil.  No responses. 
  So for now ignore everything but the orange and green boxes below.  A better alternative to this income annuity would have to guarantee more than $154,284 per year in ten years.  (Or $101,670 in 5 years of deferral.  Choose your year.)  What if the market is flat for the next 10 years like it was after 2000 (13 years, actually)?  Or lower?  If you withdrew 15.42% you would be out of money in 7 years!
  
  
  
  (the specific indexed annuity in this illustration is the IncomeShield10 from American Equity)
  
  
• The Growth Bucket-  Depending on the client and the state of the markets, indexed annuities can shine here too.  Regardless of the investment, the key is some kind of risk management.  Orman, of course, knows nothing about the questioner's current portfolio risk, rate of return needs nor time horizon.  Which is why her advice is dangerous.

Insist on evidence and understanding from anyone who gives you financial advice.  And really?  You're going to take advice from someone just because they're famous?  Bernie Madoff was famous.  Sam Bankman-Fried is famous.  Instead, use local, licensed, independent fiduciaries with a lengthy history documented with the proper regulators:  https://adviserinfo.sec.gov/individual/summary/2510814

Gary

Your Constructive Comments are Welcome!

I Can Just Build My Own Annuity- Guest Column

"I can just build my own annuity" really isn't a myth.  You can.  But it won't work as well as an insurer-based contract.  The older I get the more I witness and learn that cooperation and collaboration will always accomplish more than competition.  And above and beyond mere accomplishment, cooperation and collaboration often result in everyone winning rather than a few winners and many losers.  But there are still people who believe the phrase attributed to Attila the Hun (I don't):

It's not enough that I win.

Everyone else must also lose.

Annuities are all about cooperation and collaboration among large groups of skilled individuals designing forever products to meet forever promises (thank you Anant Bhalla, CEO of American Equity, for that wonderful motto!)  The example put together by the brilliant Charlie Gipple of CG Financial Group is vastly simplified as it only describes an accumulation annuity.  Most of us retirement income planners use income annuities, which add another complex layer of design and implementation to what Charlie so skillfully describes.  The key collaborative concepts are:

• The law of large numbers- as a statistical pool grows, its behavior becomes more predictable and therefore manageable.  Annuity companies pool the risk of large numbers of clients.
• Longevity credits- as a member of a risk pool, the longer you live the more you benefit.  Which helps manage virtually every other retirement risk:  outliving your money, enduring market corrections, suffering from illness, inflation, sequence-of-return risk, etc.  

(I might add, too, that Charlie's 7% commission assumption is a little high these days but because some products out there still pay that much I'll leave that assumption in. We are now required to disclose all compensation or any other conflicts of interest.  So be sure you get full disclosure before you buy annuities.)

So . . .

Buckle Up! We Are Going To Create An Indexed Annuity!

By

 Charlie Gipple, CLU, ChFC, CFP

 -

November 1, 2022

 

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Get out your financial calculators, spectacles, and your pocket protectors because we are going to have some fun with this column. We are going to create a product. Of course I am being somewhat facetious because there’s much more that goes into “creating a product” than just the numbers, such as: Non-forfeiture requirements, state filing, illustration parameters, surrender charges, MVAs, utilization rates, etc. I do not pretend to be an actuary, but I am about as “actuarial” as a sales guy can be. My wife tells me that’s like being the tallest elf.

Regardless, this elf is going to show you the not-so-basics of creating an indexed annuity with a “cap” based on today’s (October 7, 2022) interest rates and options prices. The purpose of this is to not make everybody into actuaries but rather to enable you to easily answer many questions about these products by having a deep understanding of how they are created.

Here is the product we—the insurance company—are going to create. This will be a 10-year indexed annuity that utilizes an annual reset S&P 500 strategy. This strategy has a “cap” that we will need to figure out based on today’s interest rates and options costs. This product will have a seven percent commission to the agent. Furthermore, we—the carrier—have shareholders that require a “return” on the company’s capital to the tune of eight percent (more on this later).

Agenda:

1. Determine how much we, the insurance company, can get in yield when we invest that client’s money.
2. Based on our IRR requirements from the shareholders, how much of a “spread” do we shave off the top of the yield that we are getting in bullet point number one above.
3. We then take what is left of the difference of number one and number two above and that determines our call option budget.
4. We take our call option budget, and we buy and also sell call options based on today’s option prices. Based on the pricing of call options, you and I will be able to identify what cap rate a person can get in today’s environment. Sounds pretty cool huh?

1: How Much Yield Do We Get?

First off, when a carrier takes a client’s $100k (example), that carrier will invest almost all of that money in the bond market. Although a lot of folks use the 10-year treasury as “the benchmark” for the yield rate, a better benchmark is the Moody’s Baa bond yield. This is because carriers generally invest more in corporate bonds than they do in Treasury bonds. Why? Because corporate bonds provide a higher yield. For instance, an index of “investment grade” corporate bonds might represent a 5.99 percent yield. This is much better than the 10-year Treasury bond that is currently yielding 3.88 percent. Thus, the reason corporates are favored over Treasuries.

Now that the insurance company knows that it can invest their money and earn approximately six percent on this money that is going into their “general account,” the carrier needs to allocate that money between the bonds and the call options. The bonds will be purchased to guarantee the money grows back to $100,000 every single year, regardless of what the S&P 500 does. This is how the carrier is able to support the policy guarantees. The call option chunk will give the indexed annuity the “link” to the stock market in the up years. Again, Bonds=Guarantees and Options=Upside.

2: The Carrier’s Cut

Before we calculate how much money goes to bonds and how much money goes to the call options, the carrier takes their cut… This is where the “carrier spread” comes in. That is, the carrier shaves a little off the top of that six percent (technically 5.99 percent in our example). That “spread” is how the carrier makes money. How much spread does the carrier require? It depends…

Our carrier has shareholders that require them to make a certain amount of money on the carrier’s capital. And make no mistake that putting a case on the books costs a carrier capital. Afterall, the carrier has to pay for the administration, paperwork, and the big one, agent commission. This is why if you have ever seen a carrier grow “too fast” they will shut off new sales.

There are various measurements on the amount of money the carrier makes off their investment, such as Return on Investment (ROI) and Internal Rate of Return (IRR).

To simplify this, let’s say that we, the carrier, pay $7,000 to put our $100,000 on the books, or seven percent. This is simplified because our agent commission is seven percent and there are technically more expenses than that but bear with me! If the carrier shareholders demanded an eight percent internal rate of return over the 10-year life of our product, what annual income would be required for the carrier to achieve that? If you put this in your financial calculator, it would require $1,043 per year to the carrier (PV=-7,000, N=10, %=8, FV=0, solve for PMT). In other words, by the carrier “investing” $7,000 of their own money, in order to get an eight percent return over the 10-year life of the product, that carrier would need 1.043 percent ($1,043) off the top of our six percent. Hence, a spread of 1.043 percent. (Note: In corporate finance you learn that if the IRR is greater than the carrier’s “cost of capital,” it is a project that is worthwhile. Hence, if a carrier borrows money at six percent and gets an IRR on that money/capital at eight percent, that is a product that has a positive “Net Present Value” and is good!)

For our example, let’s simplify the above and say that the carrier’s yield is six percent and the carrier spread that is required to keep the shareholders happy is simply one percent. No need to get crazy here with the decimals.

3. Calculating the Call Option Budget

After the carrier takes its one percent off the top, we have five percent to play with for our client and their $100,000. This is where we need to divide the money between the bonds and the call options. The bonds need to guarantee $100,000 at the end of every year to—again—support the policy guarantees. So, what dollar amount needs to go into the bonds—earning five percent—so that those bonds in the general account grow back to $100,000 at the end of the year? Hint: The correct answer is not $95,000! The correct answer is $95,238. Thus, if you add five percent to $95,238, you will get $100,000. So, if the insurance carrier is investing $95,238 in bonds, what are they doing with the other $4,762? Call options. We have arrived at our call option budget.

Review:
What have we done so far? So far, we have designed the commission level on the product at seven percent. We also calculated how much the carrier needs in spread to make the shareholders happy, and we have also arrived at our call option budget of 4.76 percent that will soon determine the cap. (Note: All of these calculations revolve around the interest rate of six percent—technically 5.99 percent. This is why indexed annuity pricing has gotten better over the past year.)

4. Buying and Selling Call Options to Arrive at Our “Cap”

So, we have $4,762 to buy call options that link our client’s $100,000 to the S&P500. That is a call option budget of 4.76 percent of our $100,000. So, the first thing we want to do is look at the prices of call options on the S&P 500 (SPX). We want this call option to give us all of the upside of the S&P 500 between now and 12 months from now, because our product is an “annual reset.” (Note: My discussion is going to be largely about percentages. The exact dollar amounts to link the client’s $100,000 would be just a function of buying multiples of what we are talking about below. The exact dollar amounts are not important. The call option budget percentages are important.)

Table 1 represents five rows—out of hundreds of rows—that represent today’s (10/8/22) option prices for an S&P 500 option that expires approximately one year from now. Because we want this option to give us growth on our client’s money from where the market is today (3,639), we need to find the “strike price” that is close to that number. In other words, we want to buy an “at the money” call option. So, we need to see what options sellers are “asking” for these options. It appears that we can buy an option for $432.10 on a S&P 500 value of 3,625. This call option represents a whopping 11.92 percent (432.10 divided by 3,625) of the “Notional Value” that is linked to the market! We have a problem here because our options budget is only 4.76 percent.

No fear, there is a solution here. That solution is that we can buy this option but then immediately sell another option that will give us back approximately 7.16 percent. This will ensure that our net options cost is only 4.76 percent. In other words, by us buying an option for 11.92 percent and selling one for 7.16 percent, our total net cost will be our options budget of 4.76 percent (11.92 percent-7.16 percent=4.76 percent).

So above, let’s buy the “at the money” option for 11.92 percent of the “notional value.”

Selling a Call Option
As you can see in the options pricing tables, the higher the “strike price” on call options, the cheaper they are. It is because the “strike price” represents the point in time where the option purchaser actually starts making money. Hence, “in the money.” So, if we are selling a call option, we want to go as far down the “strike price” as we can. This is because when the market increases to that number, that is the point that we will be giving the upside to somebody else! Ideally, we would just purchase the option that we already did above and not have to sell a call option. However, we don’t have the large call option budget to do that, therefore we must sacrifice some upside. So, let’s go down the list and see what we need to sell. We need to produce about $259.55 (7.16 percent of 3,625) so that we net out to our 4.76 percent budget.

We found something close! We can sell an option for $257.20 at a strike price of 3,950. What does this mean?

• We netted out to a cost of $174.90 (Paid $432.10—Sold $257.20). This represents something very close to our call option budget—4.82 percent (174.90 divided by 3,625)
• We just created a product with an approximate “cap” of nine percent. This is because we are participating in the upside of the market starting at 3,625 and handing off the upside “participation” in the market once it crosses over 3,950. 3,950 is approximately nine percent (8.97 percent technically) higher than 3,625.

What we have just done is created an indexed annuity that:

1. Guarantees the client’s money will never be lost. This is because the carrier has the bonds that grow back the money to $100,000 every year, assuming rates stay the same.
2. Gives the shareholders their IRR, assuming rates stay the same.
3. Gives the carrier a 4.76 percent call option budget to buy the call options after they expire every year, assuming rates stay the same.
4. Gives the carrier upside potential of nine percent that they can pass through to the client in the form of a “cap.”
5. Pays the agent a seven percent commission.

Although my calculations are my own calculations and not specific to a carrier, the product I just explained with those caps, commission rates, etc, really does exist today. So, those calculations are not pie in the sky.

Technically, one of my favorite products is the same as what I laid out here, except the A-rated carrier just announced a cap increase to 10.5 percent for premiums over $100k! How can they do that? Numerous ways. Maybe the carrier is demanding less spread for themselves. Or maybe the carrier is able to get investments at higher yields than my six percent. Both of these would mean more call option budget.

I am fully cognizant that this was a three-coffee article for you to read, but I promise you, if you are serious about indexed products, this article will help you in the future when it comes to answering questions about “How do the carriers do it?.”

Charlie Gipple, CLU, ChFC, CFP

Charlie Gipple, CLU, ChFC, CFP, is the owner of CG Financial Group, an innovative and full-service independent marketing organization (IMO) that serves independent agents that sell life insurance, annuities and asset-based long term care. He also owns “The Retirement Academy” (www.retirement-academy.com), which is a subscription based online training platform for agents, reps, and company wholesalers.

Gipple is recognized throughout the industry as one of the foremost thought leaders and subject matter experts on annuities, life insurance, long term care, leadership, storyselling and behavioral finance. He is also an industry keynote speaker conducting 100-150 speeches per year. He has spoken at the MDRT Top of the Table as well as other large forums and has also appeared on TheStreet.com and AM Best TV.

Gipple has vast leadership experience in the insurance industry as he has been an executive of various insurance companies and large independent marketing organizations. He is unique in his broad knowledge across the life insurance, annuities and securities businesses. Additionally, within these businesses, he has a deep understanding of the distribution aspects of these products along with the actuarial and hedging aspects. He holds a bachelor’s degree in Finance from the University of Northern Iowa, is FINRA Series 7 and Series 66 licensed and also holds the CLU, ChFC, and CFP designations.

Gipple can be reached by phone at 515-986-3065. Email: cgipple@cgfinancialgroupllc.com.

Your Constructive Comments are Welcome!

Things That Social Security Can't Tell You

This post is not a myth.  It's a more thorough response to a question asked at the end of my two-hour Social Security classes: 
"What are the things Social Security can't tell me". 
This question has been asked once before, probably intended as a gotcha* but I was baffled both times, having just spent 90 minutes answering it.  My broad and incomplete response was that they can't tell you what you should do, only the effects of your timing.
There are a lot of reasons for this, none of which imply Social Security reps withhold information or are not knowledgeable.  Rather, it simply is not their job nor in their capacity to provide the answers listed below.  So, off the top of my head, here is a very short partial list of:

The Things Social Security Representatives Cannot Tell You

How and why to estimate your longevity

How much your cumulative payout might be if you claim at different ages

The difference between real and nominal COLA increments

How much of your benefit may be taxable

Strategies to reduce that taxation

Strategies to reduce taxation in general

Your potential lifetime income and estate tax bill

How, whether and when to do Roth conversions

Whether your budget and your savings permit your ideal claiming strategy

Whether Social Security is solvent

How to discover and make explicit your most important goals

How to connect your goals to your finances to increase the odds they'll happen

The pros and cons of alternatives for achieving your goals

How to assess the risks, fees and real return of your portfolios

How to assess the appropriate levels and types of risk for your unique situation

How to create lifetime income payments similar to your Social Security annuity

How much of your savings and investments you can spend and when

How and why to simplify and consolidate your investments

How to find and compare appropriate Medicare coverage

What may happen if you and/or your spouse die sooner than expected

What may happen if you and/or your spouse live longer than expected

The affect on your finances should one or both of you need long term care

Creative solutions for avoiding or reducing those three risks

What sequence risk is and how to avoid it

Whether you can retire when you plan to

The best ways to pass on your estate assets, the pros and cons

How to reduce RMDs and the resulting taxes

How long your money will last with your current budget

How to protect yourself from losing money

How to reduce fees and/or be sure you're getting value in exchange

How to structure your asset ownership

Again, that's off the top of my head.  Other issues may come up in the planning process.such as optimizing your employee benefits, the big advantage- and disadvantage -of owning a business, etc.

Gary

*Our class description says something to the effect, "Learn the things Social Security Can't Tell you".

Your Constructive Comments are Welcome!

Ten Most Searched Questions On Google Reveal a Lot About People

As a perpetual student of human nature I often check the top ten search words and questions.  This current group of questions* has me baffled.  Below are the questions and what they could mean.

1. what to watch – 9,140,000.  My guess about #1 is that most Americans have a lot of free time.
2. where’s my refund – 7,480,000.  PageTraffic says this one is seasonal, around the holidays.  Reasonable.  I'm not sure how a general Google search could answer this question.
3. how you like that- 6,120,000
   I didn't get this at all until I discovered this is a dance video by Black Pink.  Most Americans have a lot of free time.
4. what is my IP address – 4,090,000
   Your guess is as good as mine.
5. how many ounces in a cup – 2,740,000
   Our educational system has failed us.
6. What time is it- 1,830,000
   This probably precedes "in [country or city]"  Otherwise, I'm a little worried.
7. how I met your mother – 1,830,000
   Why the sudden interest in this series?
8. how to screenshot on mac – 1,830,000
   Seems reasonable.
9. where am i – 1,500,000
   Our educational system has failed us.
10. how to lose weight fast – 1,500,000

Let me know your take on these.

Gary

Your Constructive Comments are Welcome!

*courtesy of PageTraffic.com

Fixed In exed Annuities Won't Improve My Retirement

As we've proven thousands of times in our initial, and comprehensive, retirement financial plans, this is a solid myth for almost everyone.  But don't take my word for it.  Here is an accessible but detailed body of evidence gathered by financial behemoth BlackRock.  See page 7 especially.

 https://drive.google.com/file/d/1tNO0xoEGRa1w9i3eSyoBpnjzX5FPKBek/view?usp=sharing

Your Constructive Comments are Welcome!

Are Financial Advisors Worth The Fees They Charge?

Well, it depends on the advisor, I guess.  But Vanguard did a study in 2017 that found "with advisors, investors (over time) gain about 3% per year in value for their investments, compared to what they would get by not employing an advisor."  That's great but rather measly in my opinion.  A well done plan can make huge differences in client outcomes, even in the short term, delivering outcomes often more important than just investment returns.

In addition to the Fifty Things listed below, I think at the top of the list is that experienced, compliant fiduciary advisers put a great deal of effort into knowing their clients.  This is often frustrating to clients who want their personal financial entertainer (like the ones they read about or watch on TV) to just tell them what to do or which investments to buy.  But it takes several hours of meetings to figure out who you are, what your goals are, the nature of your current assets and how those fit in with the life you envision.

I hope you find this list useful, so you know what to expect.

Gary

50 Things a Fiduciary Financial Advisor Does for You

 INVESTMENT PLANNING

1. Cares more about you and your money than anyone who doesn’t share your last name.

2. Guides you to think about areas of your financial life you may not have considered.

3. Formalizes your goals and puts them in writing.

4. Helps you prioritize your financial opportunities.

5. Helps you determine realistic goals.

6. Studies possible alternatives that could meet your goals.

7. Prepares an investment plan and/or an investment policy statement for you.

8. Suggests creative alternatives that you may not have considered including the best way to claim Social Security.

9. Reviews and recommends life insurance policies to protect your family.

10. Assists you in setting up a company retirement plan.

11. Assists in preparing an estate investment plan for you.

12. Reviews your children’s custodial accounts and 529 plans.

 13. Helps you determine your IRA Required Minimum Distribution.

14. Provides reminders about key investment planning data.

15. Checks with you before the end of the year to identify any last minute investment planning needs.

16. Guides you on ways to fund health care in retirement.

INVESTMENTS

17. Prepares an asset allocation for you so you can achieve the best rate of return for a given level of risk tolerance.

18. Stays up to date on changes in the investment world.

19. Monitors your investments.

20. Reviews your investments in your company 401(k) or 403(b) plans.

21. Reviews your existing IRAs.

22. Helps convert your investments to long lasting income.

23. Refers you to banking establishments for loan and trust alternatives.  (I don’t do this)

24. Suggests alternatives to increase your income during retirement.

25. Records and researches your cost basis on securities.

26. Provides you with unbiased investment research.

27. Provides you with personal investment analysis.

28. Determines the risk level of your existing portfolio.

29. Helps you consolidate and simplify your investments.

30. Can provide you with technical, fundamental, and quantitative investment analysis.

31. Provides introductions to money managers.

32. Shows you how to access your statements and other information online.

TAXES

33. Suggests alternatives to lower your taxes during retirement.

34. Reviews your tax returns with an eye to possible savings in the future.

35. Stays up to date on tax law changes.

36. Helps you reduce your taxes with your tax advisor.

37. Repositions investments to take full advantage of tax law provisions.

38. Works with your tax and legal advisors to help you meet your financial goals.

PERSON-TO-PERSON

39. Monitors changes in your life and family situation.

40. Proactively keeps in touch with you.

41. Serves as a human glossary of financial terms such as beta, P/E ratio, and Sharpe ratio.

42. Provides referrals to other professionals, such as accountants and attorneys (depending you your situation).

43. Shares the experience of hundreds of his clients who have faced circumstances similar to yours.

44. Helps with the continuity of your family’s investment plan through generations.

45 Facilitates the transfer of investments from individual names to trust, or from an owner through to beneficiaries.

46. Keeps you on track.

47. Identifies your savings shortfalls.

48. Develops and monitors a strategy for debt reduction.

49. Is a wise sounding board for ideas you are considering.

50. Is honest with you.

Your Constructive Comments are Welcome!

The Best Way to Abandon the Useless Myth That There is a Best Way

Why do we obsess with the "best" this and the "best" that, especially when it comes to other people, food, or music, or art or anything else that different people react to differently?  We go to great lengths to construct artificial situations- especially in sports -to make it easy to decide who or what is "best".  We have the Olympics gold, silver and bronze medals.  Only one person can get a gold medal in their sport.  We have the Super Bowl.  Only one team can win it.  In both cases, "the best" is obvious but only because of our narrow definition of it. 

We see recipes all over the place claiming to be the best.  Just before I began this blog a recipe for challah French toast popped up.  I really like French toast.  But I don't like challah.  It's too cake-like.  I prefer whole wheat or cracked wheat sour dough.  That makes the "best" French toast for my palette. 

And so on.  The best shoes, the best tools, the best movie; I don't get it.

But my purpose with this little blog wasn't to find the causes of this useless myth, it was to begin working on abandoning it.  You don't always have to understand a phenomenon to fix it.  Usually it is sufficient to just displace the myth with better ideas and/or practices.  So if our goal is to be happier, does having the best of everything and being the best at everything make you happier than everyone else?  Not in my experience.  So what does?

I think the happiest people don't let the best interfere with the good.  They know that no matter what comes their way they will make good out of it whether it is tragedy or opportunity.  They also define for themselves what constitutes tragedy or opportunity.  They don't give much weight to the "good for you's" or the "that must be terrible's" from others. Finally, they have confidence in themselves being able to find opportunities in the most difficult of circumstances, now and in the future.

When my daughter died, that seemed to be an insurmountable blow.  It was.  I did not think I would survive it.  I didn't want to survive it, at first.  And yet, I'm still here almost 30 years later.  In the meantime, literally because I had no choice, I find it important to be more kind and generous than in the past.  I constantly ponder how I spend the last 1000 of my lifetime 4000 weeks:  Doing nothing? Being productive?  Being with people?  Spending time alone?  All of the above?

Don't let the "best" (according to other people's standards) get in the way of living your good life.

Your Constructive Comments are Welcome!

A "Balanced" Stock & Bond Portfolio Will Protect Me

Will a balanced 60/40% stock/bond portfolio smooth the investing roller coaster ride?  Well, it all depends on how many years you have to work with.  And I would say a minimum of a decade, maybe more.  Don't forget the S&P 500 index's 12 1/2 year zero return from 2000 to 2013.

So, the important question is, "protect me" from what?  

• From retirement failure (running out of money)?  Not really.  
• From market volatility (we've seen bonds tank right along with stocks)? Not at all.
  
• From Sequence of Returns risk? (the bad luck of retiring just before a major correction).  Nope.
  

As my brilliant corporate IT friend Bill pointed out to me, "Which of these years [in the chart at the link below] is not like the others [so far]?"
This is why I, many academics such as Wade Pfau and an increasing (but still very disappointing) number of advisers are using indexed annuities as partial or total bond substitutes.  Not to mention the guaranteed lifetime income they offer- if selected -and long term care benefits of some contracts.

Sorry you have to click on the link.  I couldn't get the image to display correctly.

 https://mail.google.com/mail/u/0?ui=2&ik=9e24787411&attid=0.1&permmsgid=msg-f:1742966880347625917&th=183043249e6419bd&view=fimg&fur=ip&sz=s0-l75-ft&attbid=ANGjdJ9Fvq_YzJxYRjOlQSCadi7GRn0qtPh5xlnqZz2-5TT74_cBTeCNQRVK8BadPe_lb1pTYhxm91IVvBRfII48b9VyLgiPeeyEJGgToWNlm8C3E4-v0SuzxXndBM0&disp=emb

Gary

Your Constructive Comments are Welcome!

Socially Responsible Investing Will Hurt My Investment Returns

 

This blog title is a solid myth.  In fact, over the long term, the opposite is true.  Socially Responsible Investing (now referred to as ESG- Environmental, Social & Governance investing.) not only can increase your investment returns but also reduce their volatility.*  Here is a summary of their conclusions.

 

And here are the theories about why this effect occurs:

 

*Based on a study, "ESG and Financial Performance" by Tensie Whelan, Ulrich Atz, Tracy Van Holt and Casey Clark, CFA at the NYU STERN Center of Sustainable Business.

Your Constructive Comments are Welcome!