Money Clinic: Complacency is the Silent Killer

While many people are enjoying the benefits of this long bull market run, history proves that life-long savings can be wiped-out in a heartbeat if you get careless with your investments. Severe losses can destroy a portfolio that is in distribution phase, even if they are matched by robust gains in other years.

People are living longer than ever before and need higher returns on their assets to get through an average 3-decade-long retirement. Unfortunately, the low interest rate environment has made it difficult to use some of the more traditional financial products to build your nest egg.

The stock market has been fueled – in part – by the Federal Reserve’s loose monetary policy. However, it hasn’t been a clean ride. Investor sentiment has not been the forerunner of this bull market. Consider all the Trump-haters that sold their investments thinking that he would derail the economy. Add that on top of all the people who lost fortunes in two major corrections who seriously mistrust the financial markets. There are people who moved out of equities into fixed accounts and missed huge gains in the market last year.

Unfortunately, most people have not captured the full rise in the S&P 500 over the last 8 years. They were late to get in or they were spooked into conservative models that allowed them just enough action to keep them invested.

Every up year was a vote of confidence to stay invested and remain content with a buy-and-hold investment strategy. A rising market allows investors to become overconfident in their abilities to manage their money. It is easy to become complacent. Even a swift one-week correction in the markets has recovered almost all of it ground in short order.

The market can’t do anything but go up, right?


While, compensation for the top 20% of income earners are seeing wages rise and corporations have doubled their planned stock “buybacks” to boost earnings per share, the take-home pay for the bottom 80% of the population that drives much of the economic growth long-term is microscopic.

The memories of wealth destruction a decade ago are fading. Too many people are getting complacent with their money. Complacency is a silent killer of your money. Complacency will get you wiped-out and will force you to make desperate money decisions.

Get a 5-year plan together that positions you for growth, protection and reliable income sources in multiple, efficient asset classes. Then, incorporate that into a longer-term plan to make sure you have money whenever you need it.

Don’t be complacent. Don’t get wiped-out.

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Money Clinic: Money on Sale!

The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years. While still in an upward, bullish trend, the S&P 500 fell officially into correction territory on Thursday, down more than 10 percent from its record reached in January.

One theory about why the market may be correcting now is because of a fear that the economy is too strong and complacent. The fear is that this can lead to inflation, which may cause the fed to raise interest rates too high too quickly and cool down growth.

Another concern is that the yield chase over the last 8-years and the low interest rate environment have created an extremely risky situation for retirement income planning. The threat of higher interest rates creates uncertainty in the stock market as it can potentially make stock dividends less attractive. Remember, uncertainty causes volatility which can lead to sudden corrections in the markets.

An obvious lesson for investors during this bout of volatility is that periods of uninterrupted returns don’t last. A correction is a normal part of investing. When markets correct, you can’t control their length or severity, but you CAN control how you respond.

The recent dramatic pullback in stocks has created a buying opportunity if you follow the stock-buying theory of “buy-low, sell-high”. I have no idea where the market goes next. It may continue into a longer-term correction or it might go back to its January highs. One thing is for sure, you had to put some money to work if you were smart enough to take some profits off the table at the end of 2017.

This brings me to an important point of enlightenment: if your Financial Advisor didn’t put at least some money to work in this correction – you need to FIRE HIM!!!!

The job of a good “Financial Advisor”, no matter what they call themselves: CFP, CHFC, etc., is to make sure that you are allocated properly and have money available to buy stocks when they go on sale. You are paying him to keep you calm and help prevent you from panicking and selling your investments at the wrong time. Furthermore, he should have made sure you didn’t get greedy in this bull market and took steps to help you take some profits so that you had money to deploy when stocks got cheaper.

Understand that I do not endorse “market timing” which is specifically being “all in” or “all out” of the market at any given time. However, it is extremely important to have a methodology for buying and selling investments.

Also, if you are getting close to retirement or already in retirement, it is critically important to understand that avoiding major drawdowns in the market is the key to long-term investment success. The long-term results of avoiding periods of severe capital loss will outweigh missed short-term gains. Small adjustments can have a significant impact over the long run. The best money managers I know have always been adept at working around their positions by using a set of rules to help keep emotions out of the trading arena.

By the way, remember that risk questionnaire your advisor made you fill-out when you opened an account? How do you feel about that right now? How are you going to feel if we are in a declining market for several months?

Risk questionnaires are never going to give you the right answers you need to succeed in the financial markets. Your portfolio should always be constructed (and monitored closely) to deliver a rate of return sufficient to meet your long-term goals with as little risk as possible. Your appetite for risk will constantly change so you need to construct a set of rules to follow in any market environment to help you with that objective.

Unfortunately, most “Financial Advisors” only real job is gather assets to earn a residual fee. You would think that his services include “buying on the dips” but it doesn’t unless you are one of his top clients. You see, he doesn’t have time to gather assets and watch your account. There isn’t enough time in the day (or he might be on one of his sales award trips he earned from capturing more of your money). The Financial Advisor’s mantra is “buy and hold”. This way, he can continue to make money from your account whether it is up or down.

If you are fortunate enough to get invited to investment house functions like dinners, golf outings and other events but you weren’t important enough to put money to work during a fire-sale in the markets, then you are being cheated. You are the one paying for those lush dinners with the management fees you pay. However, you are paying for incompetence. You’re paying for lackluster interest in your valuable assets.

Not only are you not getting attention to your WHOLE financial situation, you’re not even getting the courtesy of going the extra mile with your portfolio that they manage. The very least you should expect is some attention to your account and some action to put money to work at opportune times. That is what you are paying them for, right? You can pay for plenty of your own dinners if your advisor is buying money on sale for you!

This week was a true test to determine the real value of your Financial Advisor. He should have prepared you to have money available to buy on the dips. He should have put some money to work during this correction. He should also make sure you keep some powder dry in case the market continues to drop.

The dips came, and you had the opportunity to buy stocks on sale. Did he do that for you?

If he did, then make sure you hang on to that advisor! If not, there are only two words that make any sense at this point:


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Money Clinic: Reality Check

The recent pullback in the markets have created a great opportunity to revisit your financial objectives to make sure you are in the correct investments to help you reach your goals. Yes, what goes up must come down. I am not saying that a major correction lies in the balance just because of a bad week in the markets, but it does remind me that newsworthy stories sometimes create opportunities to make maneuvers that can have a lasting impact on your portfolio.

The stock market, at its core, is a reflection of the expectation of profit growth at individual companies and current/expected macroeconomic conditions. While the political landscape is mired in obscurity, President Trump has consistently touted the market’s rise since his election and throughout the first year of his presidency. There is no question that his pro-business agenda has helped lift the markets.

On the other hand, we must never forget that company estimate cuts and boosts are one of the most important determinants of the direction of stock prices. International factors, commodity prices, central bank moves, and a plethora of other moving pieces can bring down the major indexes, none of which Trump could do a thing about.

So, if you are basing future retirement income decisions based on recent action in the stock market, it might be time to consider the fact that markets do not always go up -– especially when it is time for you to take money from your accounts.

Financial advisors often like to make projections using an average rate of return. However, the only numbers that are really meaningful are the average increase in YOUR investments since the day you purchased and the sequence of returns as you make withdrawals.

Think about it. Since early 2009 until recent, the stock market has increased close to 300%. How much of that return have you gotten?

Furthermore, if you overestimate market returns, you may be less likely to save enough money to reach your goals or you may not take precautions to protect money you have earmarked for withdrawals. Also, market gains may seem to be protecting you from bad financial product choices. Remember, all your assets interact with each other. One bad decision can have a rippling effect on your financial situation.

Another example involves misunderstanding the difference between risk tolerance and risk composure. Advisors that invest your assets based on a risk tolerance questionnaire are not doing a complete job. Both conservative and aggressive clients can have challenges staying the course in bull and bear markets. For example, even if their risk tolerance remains stable, low-risk composure investors are more likely to misperceive risks — to the upside or downside — that tend to trigger potentially ill-timed buying and selling activity.

While the financial media incessantly report about the rise of the stock market, the problem is that most Americans did not have the financial capacity to participate after two devastating bear markets — particularly after following Wall Street advice. Also, product and broker fees have taken a pretty nice chunk out of those returns for individual investors.

Go ahead – print out a chart of the S&P 500 from March 2009 until present and ask your advisor why your accounts don’t look like that.

Still, if your portfolio is out of whack and you haven’t taken any profits, that’s a forerunner for pain. Think for a minute about the plan you have in place if the markets go down big and you don’t see any upside for a couple years. What are you going to do?

However, if you have figured out that there’s two sides to the equation and that you need some cash to be ready for bargains that await us or expected withdrawals that will reduce your principal, you will at least be prepared.

It is always best to be prepared.

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Money Clinic: Find the Right Fit

If you want to buy a suit that fits you perfectly, it is usually a good idea visit a tailor. He will measure you up and then craft clothing that will fit you perfectly.

When you visit a financial advisor, he should “measure you up” financially before he makes any product recommendations. Too often, advisors push products that have little or nothing to do with your overall objectives. Also, when you end up with a “hodgepodge” of financial products, they seldom work together to maximize your goals.

It is important to be clear with your advisor and tell him the things that are important to you, so he can come up with a good recommendation. It should then become extremely obvious what type of product fits in each situation because the product will do the job it needs to do.

For example, if you are trying to maximize the retirement income for you and your spouse, having a large amount in a fixed account isn’t going to help you meet your objective. Fixed accounts are generally good for savings accounts where you really need liquidity. They are not designed to maximize income.

In the past, when certificates of deposit paid 8%, many seniors counted on that fixed income to supplement their retirement, not realizing that inflation was also higher as well. Today, inflation is more subdued but acceptable rates on short-term savings and fixed-rate accounts are not available. It just isn’t an easy time to find attractive short-term rates right now – but, there are ways to do generate greater income.

In cases where you are using the wrong product to reach your objective, your advisor should help you to realize that you are using the wrong tool for the job and make a recommendation that will help you meet your objective. Remember, the purpose of the money dictates where you should put it. This is an unbreakable rule that you must follow. It will help you from getting scammed or pressured from your advisor and it help you to make the best financial decision possible.

If the purpose of the money changes, then you should reevaluate the situation and choose the right product that suits the new purpose.

On occasion, you may not have a clear purpose for a pool of money you have sitting around. In this case, you should at the very least, use a product that gives you the most benefits possible while the money is dormant. Furthermore, in this situation, you should choose a product that makes your other assets work better.

If you are paying a money manager to invest part of your money, it is vitally important to understand that any financial decision you make must be considered thoroughly because of the impact that it has on your whole financial picture and how it may affect other assets you own. Don’t deal with any advisor who wants to sell you a financial product (that usually makes him fees or commissions) that doesn’t make your WHOLE financial situation better.

Remember, when building and protecting your money, you must put every dollar towards its greatest use and optimize the performance of each financial asset that you own. In other words, makes sure your money fits together perfectly.

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Money Clinic: How to React to a Government Shutdown

You’ve probably heard that the U.S. Government has officially shut-down as of January 20, 2018. Although essential services will continue, including Social Security and Medicare payments, other governmental functions will be disrupted, and hundreds of thousands of workers will be furloughed. So, as a citizen, you may well have concerns about the shutdown. But how will the shutdown affect you as an investor?

You are likely to see some volatility in the markets in the days and weeks ahead if the shutdown continues. The financial markets do not like uncertainty, and while some of this uncertainty may already have been “priced-in” during the past few weeks as the possibility of a shutdown increased, we may still see some significant price gyrations.

Try not to overreact to these price swings, if they do occur. If you feel you must do something about your investments, it might be a good idea to take this opportunity to look over your long-term strategy to make sure it’s still properly aligned with your goals, risk tolerance and time horizon. If you are overly-exposed to an investment class or if your investment portfolio is out of balance, it makes perfect sense to rebalance your portfolio. Over time, your personal situation will change, so it’s always a good idea to review your investment portfolio, and to make those changes that can help you continue making progress toward your objectives.

While the macroeconomic environment is always unpredictable, it really makes sense to assess company-specific issues when it comes to evaluating your individual stock holdings. If the reasons you bought the stock are still holding up, there is no reason to panic and sell just because of the news headlines.

Above all else, don’t let the headlines of today scare you away from investing for tomorrow. With patience, discipline and the ability to maintain a long-term perspective despite short-term events. Furthermore, if we do see some price declines, you may well be presented with the opportunity to buy quality investments at good prices, so stay alert for these possibilities.

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