The Queen of Soul, Aretha Franklin, recently passed away with an $80 million estate… and no will. The news follows in the footsteps of other celebrities (Prince comes to mind) who never found the time to complete their financial plan. Most of our clients aren’t cashing royalty checks, but the lesson is still the same. In the financial planning world, investing steals the spotlight, but the other aspects of financial planning are what make the show run smoothly.
I have a bold prediction to make. Yes, I know I talk all time about how Fairway isn’t in the prediction business and that basing any long-term financial decision on a forward-looking prediction is a fool’s game, but I’m going to do it anyway:
I predict that the 10-year return on the S&P 500 is going to rise substantially in the next several quarters. Wow, that sounds bold…is Matt really saying that he thinks the market is going to rise big-time the rest of this year? Of course I’m not saying that! My honest answer is I have no idea what the market will do in the next few quarters.
It’s July and in Cleveland the sun is finally out. The summer sun brings with it the potential for sunburn. Sunscreen is essential to avoid the pain and potential long-term damage from getting burned, but when it works we don’t really notice its positive effect. Having bonds in a portfolio Continue Reading
One of my favorite investment reads is The Route to Performance by Oaktree Capital’s Howard Marks. Marks starts by disputing the argument that more risk means more return, “If you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5%, too.” Instead of outperformance, this philosophy can lead to a “long-term record which is characterized by volatility and mediocrity.” He then recalled a meeting he had with a pension plan director:
“We have never had a year below the 47th percentile over that period or, until 1990, above the 27th percentile. As a result, we are in the fourth percentile for the fourteen year period as a whole.”
Instead of taking big risks, the pension plan director aimed for consistent performance, resulting in stellar long-term performance as peers self-destructed.
The Howard Marks note was written in 1990, but is still relevant today. The SPIVA Persistence Scorecard further debunks the idea of an investment strategy placing in the top 10 (or even 50!) percent of its peer group every year. Investment manager selection isn’t about picking what fund will outperform in a calendar year, it’s about finding consistent performance. For most asset classes, that means buying the index.
It’s clear that 2018 will not be a repeat of 2017. Low volatility, a steady march up and to the right, and a general disregard for headline risk were last year’s calling cards. 2018 seems jittery by comparison, but is actually a more normal market. Historically, drawdowns have been slower and deeper, but maybe this year’s sharp drops and rebounds Continue Reading
The stock market fell back to earth at the end of February as CNBC trotted out its ‘Markets in Turmoil’ chyron. For all its gyrations, as of the end of February the S&P 500 was up about 1% for the year – hardly turmoil territory. Continue Reading
The S&P 500 was up 5.7% in January, after a 20%+ year in 2017. But instead of enjoying this pleasant surprise, everyone seemed to be wondering if things were going too well. Market volatility is historically low. When will it snap back? The Fed is raising rates. What if this shocks the markets? Political volatility is everywhere. Won’t this volatility eventually bleed into the markets? Continue Reading
What Happened in 2017
Experts predicted that 2017 would be a difficult year for investors. Looking back, they are now calling it an easy year. All investors had to do was stay invested, but how ‘easy’ was that? Half of a year-end Barrons roundtable of investment experts predicted S&P 500 returns of 5% or less. News headlines were dominated by tragedy (multiple natural disasters) and political uncertainty.
Everything went according to plan. Now what? After a lifetime of saving, it can be difficult to justify spending on things that we once considered frivolous.
Meir Statman recently wrote a paper for the Financial Planning Association titled “Are Your Clients Not Spending Enough in Retirement?” that outlines an interesting conundrum for many retirees. Diligent savers sometimes find it difficult to switch from the wealth accumulation phase of life to the spending phase. The widely accepted narrative that there is a retirement crisis in the United States influences these savers to prioritize penny-pinching over their own happiness. Statman calls this “self-induced poverty”.
We’re not suggesting that you should go out and buy a solid gold toilet, but it is important not to lose track of the purpose of your personal wealth accumulation. If it was for a comfortable retirement, are you actively allocating to that? A financial plan is not necessarily a function to maximize wealth. It should also consider how you aim to enjoy that wealth through lifestyle, legacy, and peace of mind.
The Social Security Act was signed into law by President Roosevelt on August 14, 1935, as a social insurance net to protect the elderly from old age, poverty and unemployment. Today, more than 93% of American workers pay into and are covered by Social Security, and the total benefits paid out in 2017 are projected to be nearly $1 trillion dollars. Social security remains a critical safety net for low income Americans, as well as an additional income source for middle-income and wealthy retirees. But applying and selecting benefits can be confusing to many and the viability of the system itself is a source of much discussion as things are very different today than they were back in 1935.
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