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What Is the “Conservative Investor” Trying to Conserve?

This is the time to be sitting down with your financial advisor and thinking about whether your notions of “risky” and “safe” still describe the financial world as it really is. If you have an invested net worth of a million dollars, and 30 years later still have that million dollars, then at long-term trendline inflation of 3%, you’ve lost about 60% of your money. Wait, what? Didn’t we just observe that you’d preserved your...

One Year, Three Classic Mistakes

THIS LITTLE ESSAY IS BEING WRITTEN ON FEBRUARY 19TH, AND with good reason: it was February 19th of last year when the S&P 500 Index made its last all-time high, just prior to a 33-day, 34% plunge as the COVID-19 pandemic burst upon the world. These 12 months have been as instructive as any within living memory—and just possibly ever. Specifically, this period offered investors the opportunity to make one or more of three classic...

A Tale of Five Decades

ONE OF THE GREATEST ADVANTAGES THE individual investor can possess—and the one least available from the 24-hour financial “news” cycle—is long-term perspective. As President Harry Truman said, “The only thing new in the world is the history you do not know.” In many important respects, the history of the last five decades is one of tremendous progress in the well-being of the world’s population, the performance of our financial markets, and the affluence of...

The Tortoise, the Hare, and the Unicorn

One of the many financial mysteries of this intensely mysterious year has been the almost incredible upward trajectory of the very largest growth stocks. This trend asserted itself even throughout the darkest days of February and March, when the rest of the equity market was getting massacred. Indeed, there were fairly long stretches during the year, even as the market recovered, where these great growth companies’ stocks weren’t just going up more than anything else:...

It Isn’t the Known Unknowns That Get You

Donald Rumsfeld's career in public service was so long that he remains both the youngest and the second-oldest person ever to have served as U.S. secretary of defense (1975–77 under Gerald Ford, 2001–06 under George W. Bush). Mr. Rumsfeld’s operating hypothesis was that in a job like that, one was always going to be dealing with unknowns. But, he said, the unknown breaks down into two categories: known unknowns and unknown unknowns. And it isn’t...

What Are These Yields Telling Us?

One wishes to tread very lightly here. That’s because one is looking at something he has never seen before, and trying to figure out what (if anything) it should mean to the long-term, goal-focused, planning-driven investor. Please take what follows in just that spirit of inquiry. The relevant facts are as follows: As I write on this 33rd anniversary of Black Monday 1987—October 19th—the current yield on the 30-year U.S. Treasury bond is 1.564%, according to Bloomberg....

Every Four Years,“This Time It’s Different”

“If you mix politics with your investment decisions, you’re making a big mistake.” —Warren Buffett After more than 50 years as an investment professional—encompassing 13 presidential elections, not counting this next one—I have some deeply felt personal advice for the American investor. First and foremost: Calm down. Think it through. I’m regularly in touch through my newsletter with a very large network of financial advisors. They report that they have never had even remotely as many clients...

You’ve Just Seen the Whole Movie

My dictionary defines a teachable moment as a time when learning a particular topic or idea becomes easiest. I’d like to suggest that, for the long-term, goal-focused investor, the period from mid-February to the moment you’re reading this essay constitutes The Mother of All Teachable Moments. It was and continues to be an object lesson in just about everything you will ever need to know to pursue a lifetime of successful equity investing. Indeed, in...

Don’t Just Do Something: Stand There

DANIEL KAHNEMAN, THE FIRST-EVER PSYCHOLOGIST TO WIN the Nobel Prize in Economics—yes, you read that right—once said, “All of us would be better investors if we just made fewer decisions.” He was alluding, of course, to our powerfully instinctive drive to change our investments in reaction to some real or imagined “crisis” in the economy and the markets—and these days, in public health (“Virus cases spike!”). The key word in the foregoing sentence is, of...

Beware the Confirmation Bias

FIFTY YEARS AGO, TWO ISRAELI PSYCHOLOGISTS—DANIEL Kahneman and Amos Tversky—completed a groundbreaking research paper, the central thesis of which is that people’s “intuitive expectations are governed by a consistent misperception of the world.” The key word in that sentence is consistent. It’s the notion that human behavior is not just randomly irrational but systematically so, and in predictable patterns. Years later, Dr. Kahneman (his colleague having passed away in the interim) was awarded the Nobel...

Of Temporary Declines and Permanent Losses

There is a curious kink in human nature that is very detrimental to success in equity investing. To wit: in virtually every area of our economic lives, we are attracted to things when they go on sale. Bargain prices draw us in, and we consider stepping up our purchases of items we need, or might just want. Examples: January white sales. End-of-modelyear car sales. Black Friday. (Conversely, we shy away from things that seem to be...

The Folly of Waiting for the Bottom

The equity market responded to the sudden onset of the COVID-19 crisis with total shock: the S&P 500 Index fell from a new all-time high into bear market territory (a close down 20%) in a record 16 days. In less than five weeks, it closed down 34% from its February 19 peak. Whereupon, even as virus infections and deaths continued to rise sharply, and economic data went from bad to dreadful, the market suddenly...

Wealth Through Time

BEGIN WITH THE PREMISE THAT THE GREAT PREPONDERANCE— if not substantially all—of the capital we accumulate during our working lifetimes is intended to support a dignified, independent retirement. In the simplest terms, then, the most basic financial issue in retirement is: will our money outlive us, or will we outlive our money? Virtually all of us are going to get one or the other of those financial outcomes; it’s improbable in the extreme that any...

The One Way to Be Sure to Catch All of a Major Market Advance

After a sudden, savage, 95-day, 19.8% decline, were you, in fact, still in your seat and strapped in when they mercifully rang the closing bell on December 24th—the worst Christmas Eve in market history?   AS I WRITE, ON THE EVENING OF MONDAY, JANUARY 13, 2020, the Standard & Poor’s 500-Stock Index has just closed at 3,288. (It will be higher or lower by the time you read this, and that will be entirely irrelevant to...

Coronavirus Update

On Friday, January 17 – after a spectacular 40% runup that started the day after Christmas 2018 – the Standard & Poor’s 500-Stock Index closed at 3,329.62. Two weeks later to the day – last Friday, January 31 – the Index closed a little over three percent lower, at 3,225.52. (Indeed, more than half that damage was done on Friday.) Financial media suspects that the blended value of 500 of the largest, best financed, most profitable...

The SECURE Act

Long-established retirement account rules change. Provided by Sheri Winegardner, CFP®, CPWA® The Setting Every Community Up for Retirement Enhancement (SECURE) Act is now law. With it, comes some of the biggest changes to retirement savings law in recent years. While the new rules don’t appear to amount to a massive upheaval, the SECURE Act will require a change in strategy for many Americans. For others, it may reveal new opportunities. Limits on Stretch IRAs. The legislation “modifies” the required minimum...

Client’s Corner: This Wasn’t Supposed to Happen

AS I WRITE, IN THE RUN-UP TO THANKSGIVING, THE S&P 500 Index has significantly breached 3,100. Should it end the year there, it will have advanced nearly 24% from its December 31, 2018 close of 2,507. Add a couple of percentage points of return from cash dividends, and 2019 will turn out to be one of the greatest years in one of the greatest bull markets in history. But that’s actually not the remarkable thing. What is most noteworthy about...

Politics and Investment Strategy: Never the Twain Shall Meet

“This is it. This is the end of everything.” —H. L. Mencken, the “Sage of Baltimore,” on the morning of November 3, 1948, reacting to the election of Harry Truman  THE RECORD WILL SHOW THAT THE COMMENTATOR CITED above, usually so full of gimlet-eyed realism, wasn’t quite so sage that November morning.  Truman’s thumping defeat of Dewey the previous day—incidentally, the greatest upset in the history of American politics, bar none— was not the end of...

Volatility, by Its Proper Name

Confucius said that the beginning of wisdom is to call things by their proper name. And a century ago, a pioneer in the field of linguistics named Edward Sapir noted that the “real world,” as people experience it, is very much based on the way their culture uses language. “We see and hear as we do,” he said, “because the language habits of our community predispose certain choices of interpretation.” So let it be with that...

A Game Changer

By Jennifer Hutchins, CFA and Martin Landry, CFA, CFP®, CAIA, CIMA®, CIPM, CTFA, AIF® The end of the tentative trade truce between the world’s two largest economies triggered a sell-off on global stock markets and sent investors scurrying into safe-haven assets. On Monday, August 5, the Dow Jones Industrial Average fell 767 points (about 2.9%) and the S&P 500 Index fell 87 points (about 3%). Around the globe, international markets felt the pain as well with...

Fed at the Mercy of the Markets (and a Trade War)

By Martin E. Landry, CFA, CFP®, CAIA, CIMA®, CIPM, CTFA, AIF® Manager of IMRG and Senior Portfolio Manager In a dramatic shift in monetary policy, the U.S. Federal Reserve (Fed) cut short-term interest rates by a 0.25 percent at the conclusion of the July 31 Federal Open Market Committee (FOMC) meeting. The reduction in interest rates by the U.S. central bank is the first since December 2008, a time when the world’s economies were reeling in a freeze up of...

Ways to Ease the Cost of College

A look at grants, scholarships, 529 plans, and other methods. Provided by Sheri Winegardner, CFP®, CPWA® How much could a college education cost in the 2030s? You may want to take a deep breath and sit down before reading the next paragraph. A MassMutual analysis projects that four years of tuition, room, and board at a private college will cost nearly $369,000 in 2031.An article at CNBC offers a slightly cheaper estimate, putting the total expense at $303,000 for a freshman setting...

Quarterly Economic Update: A review of Q2 2019

Sheri Winegardner, CFP®, CPWA® In this Q2 recap: stocks rise, fall, and then soar, as the Federal Reserve shifts its thinking and new chapters unfold in the ongoing U.S.-China trade dispute. THE QUARTER IN BRIEF The S&P 500 certainly rollercoastered during the second quarter of 2019, but it also gained 3.8% across those three months. U.S.-China trade negotiations unwound, but as the quarter ended, they showed signs of resuming. The Federal Reserve grew dovish. Yields...

Don’t Let Trade Concerns Cause Your Portfolio to Run a Deficit

By Jennifer Hutchins, CFA Portfolio Manager, Investment Management Research Group                                                                 With a very strong start at the beginning of 2019, the market has hit a few bumps recently, with most of the additional volatility being attributed to China/US trade relations. Nevertheless, all major indices remain positive both domestically and internationally through the end of April. Volatility is a normal part of a standard business cycle. In fact, since the low point of the Great Recession was struck in March 2009,...

Factors to Consider When Buying a Home

Purchasing a home is the largest financial decision that most people will ever make. According to Consumer Reports, many Americans qualify for larger mortgages than they can actually afford. If the bank pre-qualifies you for a loan, does it mean you should take it? Many financial planners recommend limiting the amount you spend on your home to 25 percent of your income.1 However, the Bureau of Labor Statistics says the average couple spends over 31 percent of...

Keys to Making Wise Investment Decisions

In the wealth management business, behavioral finance is the study of the influence of psychology on the behavior of investors and the subsequent impact on the markets. It’s an important topic for discussion because of its explanatory power of irrational investment decisions. We are constantly bombarded with news and live in a culture of information overload. Fortunately, we can use some of this information in our favor when making investment decisions. What if there...

A Recipe for Achieving Your Goals

Does thinking about investing leave a bad taste in your mouth? With all the jargon that gets tossed around — headwinds/tailwinds; beta versus smart beta; portfolio under- and over-weightings; Brexit, Grexit and even Texit — investors are often left feeling like they have egg on their face when they try to make sense of it all. Here’s some food for thought: think of your investments like ingredients for a recipe. Just as there are seemingly...

Managing Volatility through Diversification

It’s impossible to time the market perfectly or completely avoid market fluctuations, and every year, there is significant rotation on which of the asset classes at right perform well or poorly. So how can long-term investors not only endure market fluctuations but plan for them in their journey to achieve their financial goals? The way an asset class’s performance rises and falls over time is known as volatility. In 1952, Nobel Laureate and 1st Global’s...

Is the World More Uncertain than We Think?

By Joan Alexandre Investment Analyst, Investment Management Research Group at 1st Global When What You See Is All There Is In 2011, Nobel laureate and research psychologist Daniel Kahneman published “Thinking, Fast and Slow”. This New York Times bestseller written with frequent collaborator Amos Taversky¹ encapsulates decades-long research into the factors governing human judgment and decision making. A particular focus of their research is how human judgment in practice runs counter to the notion decision-making always seeks...

A Strong Economy or Looming Recession?

Impending signs of “doom” lurking around the corner sent U.S. stock markets into a tailspin this week, falling roughly 4 percent at their lowest intra-day point. Volatility and downward pressure has been a relatively consistent theme for the Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite Index in recent weeks as oil prices have taken a dive, the U.S. and China continue to negotiate trade and tariffs, and whispers of...

How the Tax Reforms Will Take Effect

Some of the impact of the Tax Cuts & Jobs Act will be felt later than January 1. Provided by Sheri Winegardner, CFP®, CPWA® President Donald Trump signed the Tax Cuts & Jobs Act into law on December 22, and on January 1, some key details of the Internal Revenue Code will abruptly change.1 There will be night-and-day change, both figuratively and literally. On January 1, the federal estate tax exemption will double; the standard federal...

What Should You Keep?

Even with less itemizing, there are still tax documents you want to retain for years to come. Provided by Sheri Winegardner, CFP®, CPWA®   Fewer taxpayers are itemizing in the wake of federal tax reforms. You may be one of them, and you may be wondering how many receipts, forms, and records you need to hold onto for the future. Is it okay to shred more of them? Maybe not. The Internal Revenue Service has not changed...

Avoid These Life Insurance Missteps

Shop wisely when you look for coverage. Provided by Kathie Sulick, CPA/PFS   Are you about to buy life insurance? Shop carefully. Make your choice with insight from an insurance professional, as it may help you avoid some of these all-too-common missteps. Buying the first policy you see. Anyone interested in life insurance should take the time to compare a few plans – not only their rates, but also their coverage terms. Supply each insurer you are considering...

Why Life Insurance Will Always Matter in Estate Planning

With or without the estate tax, it addresses several key priorities. Provided by Sheri Winegardner, CFP®, CPWA® Every few years, predictions emerge that the estate tax will sunset. Even if it does, that will not remove the need for life insurance in estate planning. Why? The reasons are numerous. You can use life insurance proceeds to equalize inheritances. If sizable, illiquid assets make it difficult to leave the same amount of wealth to each heir, then the...

The Importance of a Life Insurance Audit

Is it time to review your policy? Provided by Sheri Winegardner, CFP®, CPWA® Life insurance is hard. It’s hard to know if you have the right kind. It’s hard to know if you have enough. And it’s hard to know if you need any at all. The insurance companies have made it even harder by coming up with bewildering names: whole life, term life, universal life. Some life insurance policies have a cash value, while others do...

Will You Avoid These Estate Planning Mistakes?

Too many wealthy households commit these common blunders.  Provided by Sheri Winegardner, CFP® Many people plan their estates diligently, with input from legal, tax, and financial professionals. Others plan earnestly, but make mistakes that can potentially affect both the transfer and destiny of family wealth. Here are some common and not-so-common errors to avoid. Doing it all yourself. While you could write your own will or create a will or trust from a template, it can...

Should You Apply for Social Security Now or Later?

 When should you apply for benefits? Consider a few factors first. Provided by Kathie Sulick Now or later? When it comes to the question of Social Security income, the choice looms large. Should you apply now to get earlier payments? Or wait for a few years to get larger checks? Consider what you know (and don’t know). You know how much retirement money you have; you may have a clear projection of retirement income from other...

Keeping This Correction in Perspective

After 20 months of relative calm, this volatility needs to be taken in stride. Provided by Sheri Winegardner, CFP® Are you upset by what is happening on Wall Street? It may help to see this pullback within a big-picture context. Corrections have become so rare as of late that when one occurs, emotion threatens to influence investment decisions. So far, February has been a rough month for equities. At the close on February 8, the Dow Jones...

Life Insurance Products with Long Term Care Riders

Are they worthwhile alternatives to traditional LTC policies? Provided by Sheri Winegardner, CFP® The price of long-term care insurance has really gone up. If you are a baby boomer and you have kept your eye on it for a few years, chances are you have noticed this. Last year, the American Association for Long-Term Care Insurance (AALTCI) noted that married 60-year-olds would pay between $2,000-3,500 annually in premiums for a standalone LTC policy.1 Changing demographics and low...

Who Needs Estate Planning?

Why it is so important and not just for the rich. Provided by Sheri Winegardner, CFP® You have an estate. It doesn’t matter how limited (or unlimited) your means may be, and it doesn’t matter if you own a mansion or a motor home. Rich or poor, when you die, you leave behind an estate. For some, this can mean real property, cash, an investment portfolio, and more. For others, it could be as straightforward as the...

Tax-Loss Harvesting

A useful year-end move to counteract capital gains. Provided by Sheri Winegardner, CFP® It looks like 2017 will end up being a very good year for the stock market. Consequently, you may realize short-term capital gains. What will you do about them? You could do what many savvy investors do – you could “cash in your losses” and practice “tax-loss harvesting.” Selling losers to offset winners. Tax-loss harvesting means taking capital losses (selling securities worth less than...

Have a Plan, Not Just a Stock Portfolio

Diversification still matters. One day, this bull market will end. Provided by Sheri Winegardner, CFP® In the first quarter of 2017, the bull market seemed unstoppable. The Dow Jones Industrial Average soared past 20,000 and closed at all-time highs on 12 consecutive trading days. The Nasdaq Composite gained almost 10% in three months.1 An eight-year-old bull market is rare. This current bull is the second longest since the end of World War II; only the 1990-2000...

Questions After the Equifax Data Breach

Consumers may be at risk for many years. Provided by Sheri Winegarder, CFP® How long should you worry about identity theft in the wake of the Equifax hack? The correct answer might turn out to be “as long as you live.” If your personal data was copied in this cybercrime, you should at least scrutinize your credit, bank, and investment account statements in the near term. You may have to keep up that vigilance for years...

Debt Ceiling Showdown Redux: A Default by Any Other Name

In a September 2013 “Fact Checker” column for The Washington Post, Glenn Kessler suggested that “generally, raising the debt ceiling has been routine and not especially controversial…although fiscal conservatives in Congress at times have used the debt limit as a way to force concessions by the executive branch on spending.” It depends on what is “controversial” to its author. To read the whole article, please visit cpawealthenterprise.com.

Why You Should Stay Invested Through Tense Times

Crises pass, and markets eventually regain equilibrium. Provided by Sheri Winegardner, CFP® We have seen some uneasy times lately. Uneasiness impacts the financial markets. When it does, we all need to keep some long-term perspective in mind. Those who race to the sidelines and exit equities may regret the choice when crises pass. Wall Street loves calm. Traders literally want “business as usual,” every day. If breaking news disrupts that calm, it can rattle the market –...

Social Engineering Attack Methods

While computer system breaches are often done through means of technology, there are certain methods hackers can use to gather information through other forms of manipulation — especially social engineering. To read the whole article, please visit cpawealthenterprise.com.

Reducing the Risk of Outliving Your Money

What steps might help you sustain and grow your retirement savings? Provided by Kathie Sulick, CPA/PFS and Sheri Winegardner, CFP® “What is your greatest retirement fear?” If you ask retirees that question, “outliving my money” may likely be one of the top answers.  Retirees and pre-retirees alike share this anxiety. In a 2014 Wells Fargo/Gallup survey of more than 1,000 investors, 46% of respondents cited that very fear; 42% of the respondents to that poll were...

Protecting Your Business When Employees Leave

While it’s always important to take a variety of measures to ensure you are protecting your company from data breaches, this prevention becomes even more imperative when employees who were privy to secure information leave the company. To read the whole article, please visit cpawealthenterprise.com.

Fixed-Income Strategies for a Rising-Rate Environment

by Rick Spencer, CFA Fixed Income Trader Interest rates have begun to trend higher after bottoming in July 2016. After reaching a low of 1.36 percent last year, the 10-year Treasury yield recently hit 2.6 percent and currently rests at a 2.56-percent yield, as of March 8, 2017. Higher interest rates have benefited bond buyers with higher starting yields but will become a source of concern if rates continue to climb. To read the full article, please...

Stay Alert: Tax Season Fraud

Last year, fraud rose to unprecedented levels. IRS estimates indicate a 400% increase in phishing and malware incidents during the 2016 tax season. In his an article for CPA Wealth Enterprise, compliance specialist Shawn Baxter cautions taxpayers to stay vigilant. Criminals are finding more and more ways to sidestep the safeguards put in place. Here are some fraud attacks to stay alert for: IRS-Impersonation Telephone Scams Malware Schemes Email Phishing Scam: "Update your IRS...

What is asset allocation, and why is it essential to smart investing?

Asset allocation is the practice of diversifying your portfolio into a variety of different types of assets. Some of these assets could include stocks from U.S. and foreign companies, bonds from governments and corporations, and cash or money-market funds. Perhaps your portfolio will be comprised of safer, more conservative assets, but you include some assets that are riskier but have a potential for greater return. Risk can never be eliminated entirely, but with the...