NewsLetter, Vol. 13, No. 1 – February 2020

HRE Headshot_01-2019

Harold Evensky CFP® , AIF® Chairman

DEAR READER:

 

CAVEAT EMPTOR

I’m not sure how comfortable this would make me feel if I were a client; however, as Barbara Roper notes at the end, it is an impressive effort to meet the new CFP Board standards.

“Northwestern’s CFP disclosures put industry’s fraught questions in focus”      – Financial Planning

“More than 1,000 CFPs affiliated with Northwestern Mutual now have to make their conflicts of interest abundantly clear and explain how they manage them in clients’ best interests.

“The insurer and broker-dealer has created a disclosure document intended to comply with the CFP Board’s new code of ethics and standards of conduct. In the document, advisors tell planning clients outright that they’re incentivized to ‘sell Northwestern Mutual insurance products to a client often’ – and for the highest possible commissions.

“The CFPs at Northwestern also have a financial interest in selling permanent life insurance with higher initial premiums than term products. They’re encouraged ‘to sell more expensive products and services to you which will have the effect of increasing my compensation,’ the document states. They can be paid on an ongoing basis for selling a Northwestern variable annuity in a brokerage account with less than $50,000, but not for selling a mutual fund, the brochure says.

“‘I know that in the long run, I will benefit most by serving you well,’ it says later. ‘Your interests and my interests align in this respect because I rely heavily on the referrals I receive from satisfied clients. This in itself helps to mitigate the material conflicts of interest described above.’”

Financial Planning obtained the remarkable 8-page template, which is entitled “My commitment to you as a CFP professional.” The traditional brokerage and insurance incentives don’t stand out as much as the firm’s “sincere effort to explain those conflicts clearly,” according to Barbara Roper, director of investor protection for the Consumer Federation of America.

“I’ve read a lot of these types of documents over the years, and this is clearer than most, Roper said in an email.”

https://www.financial-planning.com/news/northwestern-mutual-cfps-disclose-conflicts-of-interest-under-new-standards

 

STAR SPANGLED BANNER AS YOU’VE NEVER HEARD IT

https://youtu.be/YaxGNQE5ZLA

And my friend Freddie said they left out the last two words: “Play ball!”

He also added some background… https://www.smithsonianmag.com/history/the-story-behind-the-star-spangled-banner-149220970/

 

CREDIT SCORE MYTHS

From the Wall Street Journal:

“Some common myths include: checking credit scores can hurt the credit score (a ‘hard inquiry’ where a financial firm is evaluating a potential loan so you can have an impact, but a ‘soft inquiry’ like an employer conducting a background check does not, nor does a soft inquiry of checking your own credit score); paying bills on time is all you need to worry about (it’s not, as ‘credit utilization’ also matters, because paying on time but always being maxed out is a negative compared to ‘just’ using 30% of your available credit each month, which can be remedied by spending less or simply asking for a credit limit increase); carrying a balance helps boost the credit score (it doesn’t; it just racks up interest charges!); closing an old card with a high interest rate will help (it doesn’t, and closing a long-standing card can actually reduce the score by reducing the average age of your credit accounts); opening a new retail card at a 0% rate is good for your score (it’s not; it’s a hard inquiry that’s more likely to reduce the score); shopping for a mortgage/auto/student loan hurts the credit score (hard inquiries matter, but if multiple hard inquiries come together, they’re bundled together as a single query and recognized as a single transaction that reflects the borrower is likely just shopping around); and assuming credit reports are accurate in the first place (the FTC found in 2012 that 21% of consumers had errors, with 5% of the cases so serious it impaired their credit… which means it really is important to monitor your credit score to ensure credit events are being reported properly!)”

https://www.wsj.com/articles/9-myths-about-credit-scores-11571623800

 

SMILE FOR THE DAY

From my friend Bill

 

MORE SMILES

From my friend Judy

02-20_06

EXCLUSIVE: CALPERS FIRES MOST OF ITS EQUITY MANAGERS

Excerpts from Chief Investment Officer

Better late than never?

In a major investment move, the California Public Employees’ Retirement System (CalPERS) has terminated most of its external equity managers, slashing their allocation to $5.5 billion from $33.6 billion. Only three of 17 external equity managers have been spared in the reduction …

The memo, which has not been publicly discussed, says the moves are necessary because of long-term underperformance. The memo obtained by CIO says that Meng is putting a “renewed focus on performance and our ability to achieve our 7% assumed rate.”

Meng, who took over as CalPERS’s CIO in January, has repeatedly expressed concerns, not only about CalPERS achieving the 7% assumed rate of return …

“Over the last five years, traditional managers have underperformed their benchmarks by 48 bps and emerging mangers by 126 [bps],” the memo says…

Over the last decade, CalPERS has moved to managing most of its $187 billion in equities in-house, the majority of the strategies index-based [my emphasis]…

Good luck on the 7% assumed rate of return!

https://www.ai-cio.com/

 

CAPABLE

If you or a family member is facing health issues threatening their ability to remain in their home, you might check CAPABLE. The Community Aging in Place—Advancing Better Living for Elders (CAPABLE) project addresses both function and cost. CAPABLE is a program developed at the Johns Hopkins School of Nursing for low-income seniors to safely age in place. The approach teams a nurse, an occupational therapist, and a handyman to address the home environment and uses the strengths of the older adults themselves to improve safety and independence.

https://nursing.jhu.edu/faculty_research/research/projects/capable/

 

SOME INTERESTING TID BITS

From my longtime friend David:

THE RISK OF JUST ONE STOCK: 56 individual stocks within the S&P 500 are up at least +50% YTD through the close of trading last Friday, 11/29/19, including 11 stocks that are up at least +75% YTD. There are also 13 stocks that are down at least 30% YTD, including 4 stocks down at least 50% (source: BTN Research).   

NEVER BEFORE: The USA exported more barrels of crude oil and petroleum products in both September and October this year than it imported, the first time that our nation’s oil exports have exceeded its imports based upon monthly records maintained since 1949; i.e., the last 70 years (source: Energy Information Administration).

THE KIDS INHERIT AND THEN THEY SELL: There are 79.5 million owner-occupied homes in the United States as of 9/30/19. By the year 2037, 21 million of the 79.5 million homes (26% of all current homes) are projected to have a change of ownership as the “Baby Boomer” generation dies. (source: Zillow).

 HEALTH INSURANCE: In 2018, the average American employee paid $453 per month for his/her family’s health insurance coverage through an employer-sponsored plan. That $453 amount represented 28% of the total cost of the insurance coverage; i.e., the employer paid $1,164 per month (source: Commonwealth Fund).

 LONG-TERM GUESS: When President Franklin D. Roosevelt proposed the Social Security retirement program in 1935, FDR’s financial people projected that total Social Security expenditure would reach $1.3 billion in 1980, or 45 years into the future. The actual Social Security outlays in 1980 were $149 billion. Thus, the analysts’ 1935 estimate represented less than 1% of actual 1980 Social Security expenditures (source: Social Security).

 

SAME SONG, SECOND VERSE

From the S&P Persistence Scorecard

For funds categorized as top performers in September 2017, 47% maintained their top-quartile performance the subsequent year. However, there was a dramatic fall in persistence afterward—just 8% of domestic equity funds remained in the top quartile in the three-year period ending September 2019. This result (8%) is consistent with the notion that historical performance is only randomly associated with future performance.

An inverse relationship exists between the time horizon length and the ability of top-performing funds to maintain their success. Less than 3% of equity funds in all categories maintained their top-quartile status at the end of the five-year measurement period. In fact, no large-cap fund was able to consistently deliver top-quartile performance by the end of the fifth year.

https://www.etftrends.com/equity-etf-channel/volatility-did-not-help-active-managers-persistence-scores/

  

DOESN’T MATTER WHERE YOU LIVE

From the S&P Persistence Scorecard – Latin America

Brazil…regardless of size focus, by the fourth year, no fund remained in the top quartile. Fixed income painted a slightly different picture than equities.

Chile…just 27% of top-performing funds in the first 12-month period repeated their outperformance in the subsequent period. This rate dropped to 9% in the third period and to 0% in the fourth and fifth periods.

Mexico … After one year, just 18% of managers remained in the top quartile, and by year two, the percentage dropped to zero… Top-quartile managers in the first five-year period were more likely to move to the bottom quartile (38% of managers) in the second five-year period than to any other quartile.

https://us.spindices.com/documents/research/persistence-scorecard-latin-america-december-2019.pdf?utm_source=marketo&utm_medium=email&utm_campaign=email_campaign&utm_content=scorecard_persistence_latam_english_1912&mkt_tok=eyJpIjoiTURBNE9UQTBOV1JpTXpZMSIsInQiOiIwNTJmOEJFRThXZWxCWXNaTUp4OTR0XC94Uklqck5GNFZJOWhxXC9Eb3l3aXVBcm83OWE2SUdTOWxNNXVVSFZsdnlWNjl4ank0R3ZVQ3VPVnh2SFNWSGlsM1B1TGkrOFhTdm1Db0pDWjhsdkg3WVBicmV6UmRVckc1QkpyK1ZqQ2c2In0%3D

 

INDEX FUNDS BREAK THROUGH $10 TRILLION IN ASSETS MARK AMID ACTIVE EXODUS

Financial Times

https://www.ft.com/content/a7e20d96-318c-11ea-9703-eea0cae3f0de?ftcamp=engage%2Femail%2Fnewsletters%2Fsmart_brief%2Fsmartbriefnewsletterscontrafcf%2Fauddev&segid=0800933

  

GEOGRAPHY LESSON

From my friend Peter:

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HOW ABOUT CHASING “WINNING” COUNTRIES?

From Dimensional Fund Advisor’s “Hindsight is 20/20. Foresight Isn’t.”

02-20_11

(12/2/2019)

The moral? Stop chasing “winners”; it’s a losing strategy.

 

WHO’S RICH?

From my friend Monty:

Who are the top one percent by income?

The cutoff for a top 1% household income in the United States in 2019 is $475,116.

 

Percentage Threshold                                    10%                             1%                               0.10%

Individual Income                                           $116,250                     $328,551

Household Income                                         $184,200                     $475,116

 

Net Worth                                                        $1,182,390                  $10,374,039                $43,090,281

Full story at https://dqydj.com/top-one-percent-united-states/

 

WHY I DON’T MAKE NEW YEAR’S RESOLUTIONS

From Parade

80% – That’s the percentage of New Year’s resolutions that fail by February.

MY BIGGEST INVESTMENT LESSONS

https://finance.yahoo.com/news/biggest-investment-lessons-102600254.html?guccounter=1

Excerpts from Christine Benz, one of my favorite commentators. Christine is director of personal finance at Morningstar.

Investing is Overrated …

I’m not saying you shouldn’t invest. You absolutely should. It’s essential. End of story. What I am saying, however, is that investing is the attention hog in many discussions about how to reach financial goals. It’s sexy, there’s often a current-events hook to explain why the market is behaving as it is, and hitting it big with an investment doesn’t usually require any sort of sacrifice. But, ultimately, your boring pre-investing choices – like your savings rate and how you balance debt paydown with investing in the market – will have a bigger impact than your investment selections on whether you amass enough money to pay for retirement or college. (I call these types of pre-investment decisions your “primordial asset allocation.”) If your savings rate is high enough and you start early enough, that can make up for some lackluster asset-allocation and investment-selection choices. The flip side is also true: If you haven’t saved enough, great investment picks probably won’t be enough to save you.

Beware the Latest Fad …

In a related vein, I’ve seen enough to conclude that many new products that come to market don’t actually help improve investor outcomes. Rather, they’re an effort to help investment firms capitalize on what’s hot and generate fees on new assets.

Get Some Help in Retirement …

Most people approaching or already in retirement could benefit from another set of eyes on their plans, to help ensure that their withdrawal rate system is sustainable, that they’re being tax-efficient with their withdrawals, and so on. Having a financial adviser who knows what’s going on in your financial life and portfolio is also the gold standard for helping ensure that nothing falls through the cracks if you become incapacitated or die.

While the traditional investment advice model requires investors to pay a percentage of their assets year in, year out, soon-to-retire and retired investors who are confident in their abilities can pay for advice on an hourly or per-engagement basis. That will be more economical than paying for ongoing advice or oversight; the downside is that the hourly or per-engagement advisor won’t be looking over your portfolio unless you ask for help. So, it’s a trade-off.

 

S&P HINDSIGHT DASHBOARD

  • In sharp contrast to last year, US equities triumphed in 2019, with the S&P 500® up 31%, its biggest annual gain since 2013. Easing trade tensions and Fed accommodation renewed optimism about the economic outlook. Mega-caps dominated as gains for the S&P MidCap 400® and the S&P SmallCap 600®, 26% and 23% respectively, lagged the S&P 500.
  • International markets also gained, with the S&P Developed Ex-US BMI up 23% and the S&P Emerging BMI up 20%.

High Beta was the best performing factor, followed by Quality; not unrelatedly, Information Technology was the best performing sector, up a remarkable 50%. Meanwhile, Value outperformed Growth for the first time in three years.

 

FROM MY FRIEND PETER

02-20_12

FAT TAILS

Why markets can be far more volatile than simple statistics might suggest.

  • From S&P DOW Jones Indices: The Landscape of Risk

https://us.spindices.com/documents/research/research-the-landscape-of-risk.pdf

02-20_13

SOBERING

More from my friend Peter

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MORE CAVEAT EMPTOR

“It’s 2020, and the chase for big commissions is back”   – Investment News

“As 2020 opens a new year and decade, the broad financial advice industry is working to make it easier for brokers and financial advisers to sell high-priced, high-commission, complex products to clients, with the focus on tapping retirement accounts that hold trillions of dollars in investor savings.”

https://www.investmentnews.com/its-2020-and-the-chase-for-big-commissions-is-back-176057

 

THE MORAL? PROTECT YOURSELF WITH THE FIDUCIARY OATH

_FIDUCIARY OATH-GENERAL

TIME IN THE MARKET, NOT MARKET TIMING

An update of a classic study from DFA.

https://www.mydimensional.com/what-happens-when-you-fail-at-market-timing

02-20_16

MORE TIME IN THE MARKET, NOT MARKET TIMING

From a study by Wayne Thorpe, senior financial analyst at the American Association of Individual Investors Journal, via my friend Clark Blackman’s most excellent client letter.

How painful is it if you don’t market time and have to live through a market downturn?

Since 1871, market downturns have recovered as follows:

  • 33% of market downturns recover within a month
  • 50% of market downturns recover within 2 months
  • 80% of market downturns recover within 1 year
  • 95% of the time those big “once or twice in a lifetime drops” return to even in 3 to 4 years.
  • Collectively, since 1871, the time it takes for the market to recover (top to trough to top again) is a mere 7.9 months!

 

DISPELLING THE MYTH

Some interesting charts from Berlinda Liu’s (Director, Global Research & Design, S&P Dow Jones Indices) blog, Are Active Funds Better at Managing Risk? Not Really.

02-20_17

And S&P’s conclusion:

02-20_18

https://www.indexologyblog.com/2019/06/05/evaluating-active-versus-passive-performance-through-a-risk-lens/?utm_source=marketo&utm_medium=email&utm_campaign=email_campaign&utm_content=blog_top_posts_2001&mkt_tok=eyJpIjoiTmpreE16UXpOVGN3TTJNeiIsInQiOiJLR0VFXC9QczhIMThldm5FemRKXC9iQUo2eWpqSGpsa1VaUEhIQ0JmS0RyUGx4WHUrR1FwczZGdjVaZTI0NGkrQ1d2R3FESU1Hcm9mR1dKRTM2K0pHTzFzcU0rXC85WGRLcU10YzFDcHNVV001QnhIemJ1SDZXd3p2blJTbWJNZG1keiJ9

Hope you enjoyed this issue, and I look forward to “seeing you” again.

 

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

Previous NewsLetters

NewsLetter, Vol. 12, No. 6 – November 2019

NewsLetter, Vol. 12, No. 5 – September 2019

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

NewsLetter, Vol. 12, No. 6 – November 2019

HRE Headshot_01-2019

Harold Evensky CFP® , AIF® Chairman

DEAR READER,

 PERSPECTIVE

From Michael Batnick, of Ritholtz Wealth Management, via my friend Bob Veres.

Recently, the DOW fell 3% in one day. That was the 307th time the Dow has fallen 3% in a day over the last one hundred years.

11-2019_01

 

OSTRICH PLANNING

Almost Half of All Americans Fear They’ll Outlive Their Savings

 “This is actually a pretty big worry for many of us, with respondents to a recent survey by the financial services company Northwestern Mutual indicating that, on average, there’s a 45% chance they’ll outlive their savings. Yet despite fears about ending up a broke senior, 41% of respondents said they haven’t taken any steps to address this concern.

“There’s a very real chance many people won’t have enough money to support them through their later years—especially as the same survey found 22% of Americans have under $5,000 saved for retirement and 15% have nothing saved at all.”

Don’t let this be YOU!

https://www.fool.com/retirement/2019/09/08/almost-half-of-all-americans-fear-theyll-outlive-t.aspx

 

AND THE WINNER IS…

According to a recent Gallup poll, some 63% of American adults drink alcohol—and their favored beverage is beer. Some 42% of American drinkers prefer beer, compared to 34% who choose wine, and just 19% who enjoy spirits the most.

https://www.usatoday.com/story/money/2019/09/14/how-much-beer-did-the-average-person-drink-in-every-state/40109241/

 

THE TEN BEST AND WORST

…states to retire in, according to WealthManagement who considered affordability, crime ranking, culture ranking, weather ranking, and wellness ranking:

BEST

  1. Nebraska
  2. Iowa
  3. Missouri
  4. South Dakota
  5. Florida
  6. Kentucky
  7. Kansas
  8. North Carolina
  9. Montana
  10. Hawaii

WORST

  1. Oregon
  2. Nevada
  3. Illinois
  4. Washington
  5. Maryland
  6. New York
  7. Alaska
  8. California
  9. New Jersey
  10. South Carolina

https://www.wealthmanagement.com/retirement-planning/10-best-and-10-worst-states-retire-2019/gallery?slide=13

 

NO END IN SIGHT?

Cost Of Employer-Provided Health Coverage Passes $20,000 Per Year 

“According to a new survey from the Kaiser Family Foundation, the average cost for an employer-provided family health insurance plan in 2019 has surpassed $20,000 per year, clocking in at $20,576 (a 5% increase from 2018), with employers bearing on average 71% of the cost … The real concern and question, though, is why costs continue to rise, especially since a recent Health Care Cost Institute study found that health care utilization declined by 0.2% from 2013 to 2017, even as average prices increased by 17.1%.”

https://www.wsj.com/articles/cost-of-employer-provided-health-coverage-passes-20-000-a-year-11569429000

 

A NEW FORM OF HIGH?

Notes from a cannabis investment fund manager:

  • Investable universe. As of the end of the second quarter, approximately 350 to 400 small-, mid-, and large-cap companies around the world were engaged in the cannabis industry.
  • Promising legislative developments. Canada is in the process of implementing “Cannabis 2.0,” which will provide guidance on recreational consumption of edibles, concentrates and topicals that contain cannabis. Cannabis 2.0 may be significant to companies that grow, distribute or sell these products.
  • A growth trend in CBD. Biosynthesis of the cannabinoid (CBD) compounds in the cannabis plant has the potential to be crucial to long-term growth. Many companies are looking to produce cultured cannabinoids as they are seeking to perfect the consistency and purity of the CBD.

 

DON’T MESS WITH LITTLE KIDS

From my friend Saby:

  • A little girl was talking to her teacher about whales.

The teacher said it was physically impossible for a whale to swallow a human because even though it was a very large mammal its throat was very small.

The little girl stated that Jonah was swallowed by a whale.

Irritated, the teacher reiterated that a whale could not swallow a human; it was physically impossible.

The little girl said, “When I get to heaven, I will ask Jonah.”

The teacher asked, “What if Jonah went to hell?”

The little girl replied, “Then you ask him.”

  • A kindergarten teacher was observing her classroom of children while they were drawing. She would occasionally walk around to see each child’s work.

As she got to one little girl who was working diligently, she asked what the drawing was.

The girl replied, “I’m drawing God.”

The teacher paused and then said, “But no one knows what God looks like.”

Without missing a beat, or looking up from her drawing, the girl replied, “They will in a minute.”

  • A Sunday school teacher was discussing the Ten Commandments with her five and six year olds.

After explaining the commandment to “honor” thy Father and thy Mother, she asked, “Is there a commandment that teaches us how to treat our brothers and sisters?”

From the back, one little boy (the oldest of a family) answered, “Thou shall not kill.”

  • The children were lined up in the cafeteria of a Catholic elementary school for lunch. At the head of the table was a large pile of apples. The nun wrote a note, and posted it on the apple tray:

“Take only ONE … God is watching.”

Moving further along the lunch line, at the other end of the table was a large pile of chocolate chip cookies.

A child had written a note, “Take all you want. God is watching the apples.”

 

NOT MY FAVORITES

However, for those of you that like these alternatives….

Gold’s price has risen 19% so far this year to around $1,520 per ounce, as investors have reportedly been shunning risky assets and moving to safer assets such as gold.

Interestingly, bitcoin enthusiasts insist on calling the cryptocurrency a “safe haven” asset. But according to analysis from The Block’s research analyst Ryan Todd, it is not. Bitcoin has seen an average 12.4% annualized 30-day volatility over the last five years, as compared to gold’s 2.5%.

https://finance.yahoo.com/news/investors-gold-holdings-3rd-consecutive-121012323.html

 

OF COURSE, NOT EVERYONE AGREES, AT LEAST IN THE SHORT TERM

Forbes September 15: Gold Correction Underway

Here is a summary of the bearish influences on the metal price:

  • Sentiment is too bullish.
  • The weekly graph shows a hook sell signal, a sign of coming weakness.
  • The monthly cycle topped on the 11th and the weekly cycle does likewise on the 17th.
  • The combination of the bullish sentiment and the cycle tops point to a volatile week to the downside for gold. There is an irregular cycle that bottoms on the 20th, which has set off short-term rallies in the past. This is likely to touch off a short-term rally in the last week of the month.
  • Both cycles bottom in the second week of October.

I expect gold to fall to at least $1440, the 38.2% retracement of the prior uptrend, before the uptrend resumes.

https://www.forbes.com/sites/greatspeculations/2019/09/15/gold-correction-underway/

 

WHAT EVER HAPPENED TO LONG TERM?

I believe kiplinger is an excellent magazine and that John Waggoner is one of the best financial writers around, but “Two Ways to Beat the S&P” was a bit disturbing.

“The Kiplinger Dividend 15, our favorite stocks for dividend income, have been riding the bull since we last checked on them in the April issue of Kiplinger’s.” It’s nice to know that it’s done well for 3 months but that seems more like dangerous noise then useful investment guidance.

Besides, focusing on dividend return and not total return can be dangerously myopic. As Jason notes in his closing, “Ideally, the companies would boost their dividend to get over our 4% threshold, but the price decline could also do the trick. Let’s hope for the former, but be prepared for the latter.” Hope doesn’t sound like a good plan, and I have no idea what “prepare for the latter” means.

 

SPEAKING OF “LONG TERM”

More financial pornography:

Gone to Pot: 20 ETFs That Have Had a Rough Three Months

Agriculture and international funds, including ETFMG’s Alternative Harvest ETF (MJ), posted the worst returns over the past three months.

I guess that’s better than “a rough time in the last 10 minutes.”

https://www.wealthmanagement.com/etfs/gone-pot-20-etfs-have-had-rough-three-months

 

20 PEOPLE WHO HELPED SHAPE THE FINANCIAL PLANNING INDUSTRY

50TH ANNIVERSARY OF FINANCIAL PLANNING: FINANCIAL PLANNING FOUNDERS STARTED A MOVEMENT — AND CREATED A PROFESSION

Cool!

11-2019_02

Harold & Deena Evensky

https://www.investmentnews.com/article/20190914/FEATURE/190919985/financial-planning-founders-started-a-movement-and-created-a

 

GOOD NEWS FOR THE RICH

11-2019_03.png

IT’S OFFICIAL

End of Era: Passive Equity Funds Surpass Active in Epic Shift

It’s official: inexpensive index funds and ETFs have finally eclipsed old-fashioned stock pickers.

Passive investing styles have been gaining ground on actively managed funds for decades. But in August, the investment industry reached one of the biggest milestones in its modern history, as assets in US index-based equity mutual funds and ETFs topped those in active stock funds for the first time.

https://www.bloomberg.com/news/articles/2019-09-11/passive-u-s-equity-funds-eclipse-active-in-epic-industry-shift

 

HELP!

My passport is about to expire (or it’s lost) and I travel in a few days.

11-2019_04.jpg

If you’re desperate and are prepared to pay $500–600, there is a reasonably convenient solution. You can visit one of FedEx Office’s 2,000 locations, or solve your problems online…

Taking care of things in person is a better option if you need to get your passport photograph taken. Any FedEx Office location offers photo services. After the photo, customers are guided to a computer area of the store and shown how to complete the transaction online.

You’ll have to pay a government fee of $170, but then rates skyrocket from there based on how quickly you need the goods. The price will depend on your timetable. Same-day service will cost you $449, while the cheapest and slowest option, 8–10 days, costs $119. Then there are shipping costs. FedEx standard overnight is $29.95, FedEx priority overnight is $39.95, and FedEx priority overnight including a Saturday is $54.95.

Note that just because you are processing it in one business day doesn’t mean you’re getting your passport back in one business day. In most cases, your passport still has to be shipped to you.

“For example, by choosing the 24-hour service option on Monday, FedEx will receive your application and begin processing Tuesday morning,” the FedEx website reads. “By Tuesday afternoon, your passport will be shipped to you for Wednesday delivery. You may be eligible to pick up your passport Tuesday afternoon or have it delivered the same day in select cities.”

https://www.chicagotribune.com/travel/ct-trav-wp-renew-passport-0718-20190718-ggwfcpttbrbjfippxaowl4tdty-story.html

 

WHAT YOUR ADVISOR ISN’T TELLING YOU

Excerpt from an excellent Kiplinger article:

“Ask the advisor to sign a fiduciary oath.”

Needless to say, I agree and recommend the Committee for the Fiduciary Standard “mom and pop” oath.

http://www.thefiduciarystandard.org/wp-content/uploads/2015/02/fiduciaryoath_individual.pdf

https://www.kiplinger.com/article/investing/T023-C000-S002-what-your-financial-adviser-isn-t-telling-you.html

 

FREE MAY BE VERY EXPENSIVE

More good advice from Kiplinger:

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“One of the more popular prospecting strategies for financial advisers over the last couple of decades has been the dinner seminar. While its popularity has waned recently, with new marketing strategies taking hold, there are still plenty of seminar dinners still taking place…

“In order to make these expensive presentations work from a profitable business model standpoint, these dinners can often be sales tools to sell high-commissioned products. Many presenters push products that maximize the YTB. That stands for Yield to Broker, which may not end with a good result for the client.”

So, be cautious of a “Free Steak Dinner” offer. It could end up being one of the more expensive meals of your life!

Caveat emptor.

https://www.kiplinger.com/article/retirement/T064-C032-S014-about-financial-seminars-with-free-steak-dinners.html

 

WOE BETIDE THE HEDGE FUND MARKETER

Looks like I’m not the only hedge fund skeptic.

From Institutional Investor:

“Investor relations professionals are finding it challenging to secure clients as investors continue to pull billions of dollars out of hedge funds … Regardless of firm size or assets under management, luring investors was seen as a top challenge by survey respondents. In the hedge fund industry, these challenges are further evidenced by five consecutive quarters of outflows, amounting to $62 billion redeemed by investors on a net basis between April 2018 and June 2019, according to HFR.”

https://static1.squarespace.com/static/594976df29687fe3e672bc85/t/5d938a3aa5fec676a1709e85/1569950266538/Woe+Betide+the+Hedge+Fund+Marketer.pdf

 

FOR YOUR BUCKET LIST

North Pole Igloos — $105,000/per night

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Located in the North Pole and claiming the title of “northernmost hotel in the world,” these igloos will cost you $105,000. Thankfully, that price tag includes more than just a night in a glass dome. You will also be given two nights in Svalbard, Norway, flights between Svalbard and the North Pole, one night in the igloo itself, chef-prepared meals, security and an Arctic wilderness guide. However, you’ll still have to coordinate your flight to the isolated island of Svalbard in Norway.

If that’s a bit pricey, you might consider…

The Muraka at the Conrad Maldives — a bargain at $50,000/per night

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The Muraka suite is the world’s first underwater hotel suite—and comes with a pretty price of $50,000 a night. However, there’s a four-night minimum stay required, so you’re looking at $200,000 to sleep with the fish. This suite is two stories tall, with the underwater portion being 16 feet below the Indian Ocean. What can you expect for $50k a night? You’ll enjoy a private chef, butler, boat, bar, gym, and infinity pool. In addition to all of that, you’ll automatically be upgraded to Hilton Diamond status.

https://thepointsguy.com/news/worlds-most-expensive-hotel-rooms/

 

GOODNESS

From my friend Mark:

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HOPE MAY SPRING ETERNAL BUT PERSISTENCE DOESN’T

From S&P Dow Jones Indices research — A REALLY IMPORTANT LESSON.

One key measure of successful active management lies in the ability of a manager or a strategy to outperform their peers repeatedly. Consistent success is the one way to differentiate a manager’s luck from skill. The S&P Persistence Scorecard shows that few funds consistently outperformed their peers:

  • 4% of domestic equity funds remained a top-quartile fund over the three-year period ending March 2019.
  • The ability of top-performing funds to maintain their status typically fell over longer horizons. For example, zero large-, mid-, or multi-cap funds maintained their top-quartile status at the end of the five-year measurement period.
  • Top-performing funds were more likely to become the worst-performing funds than vice versa over the five-year horizon. While 15.3% of bottom-quartile domestic equity funds moved to the top quartile, a greater percentage (31.5%) of top-quartile funds moved to the bottom quartile during the same period.

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https://us.spindices.com/search

 

SOME INTERESTING STATISTICS

From the 2019 SIFMA Capital Markets Fact Book:

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https://www.sifma.org/wp-content/uploads/2019/09/2019-Capital-Markets-Fact-Book-SIFMA.pdf

 

FINANCIAL PLANNERS LOOKIN’ GOOD

“Advisors” Score Highest in Intelligence While “Brokers” Score Lowest in Trustworthiness in Survey Showing Titles Matter

“Portland, Maine-based Tharp authored the “Consumer Perceptions of Financial Advisory Titles and Implications for Title Regulation” paper for the Mercatus Center at George Mason University. He is an assistant professor of finance at the University of Southern Maine.

Among the financial professional titles, ‘financial planner’ scored the highest in trustworthiness, helpfulness, depth, work ethic and success. ‘Financial advisor’ scored the highest in intelligence. ‘Financial counselor’ was on top in honesty, serving the interest of others and caring.

In contrast, ‘broker’ scored the lowest in honesty, serving the interest of others, trustworthiness, helpfulness, depth and caring. ‘Life insurance agent’ scored the lowest in intelligence, work ethic and success.”

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https://financialadvisoriq.com/c/2508873/298023/advisors_score_highest_intelligence_while_brokers_score_lowest_trustworthiness_survey_showing_titles_matter?

 

THE BEST SONG EVER

https://www.youtube.com/watch

 

GOOD ONES

From my #1 son:

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RICH PEOPLE

Seems like there are a bunch.

At Family Office Exchange (FOX), one of the questions we hear most frequently is: How many single family offices (SFOs) are there?”

Recently, Family Wealth Report estimated that there were about 6,000. Campden Wealth puts the figure at 7,300

According to the Wall Street Journal, the threshold for SFOs is generally considered to be $100 million due to the costs and challenges of running such an entity. In the United States alone, there are approximately 20,407 individuals with more than $100 million in assets, as reported in the Credit Suisse 2018 Global Wealth Report.

https://www.wealthmanagement.com/high-net-worth/how-many-family-offices-are-there-united-states

 

THE FOX GUARDING THE HEN HOUSE

The Senate confirmed Mr. Scalia to head the agency [the Securities and Exchange Commission – SEC]. He now takes over a department whose fiduciary rule to raise investment advice standards in retirement accounts he was instrumental in killing.

Mr. Scalia, formerly a partner at Gibson Dunn & Crutcher, was the lead counsel in a lawsuit against the DOL rule. Representing financial industry opponents of the regulation, Mr. Scalia argued that the regulation was too costly and that the DOL had overstepped its authority in promulgating it.

https://www.investmentnews.com/article/20190926/FREE/190929944/senate-confirms-scalia-as-dol-secretary-on-party-line-vote

 

WHAT, ME WORRY?

From planadvisor, July–August 2019:

What advisors predict will be clients’ three greatest worries for the next 12 months, and what clients say those actually are:

Advisors                      Investors

Increased market volatility                   56%                             66%

Cost of health care                                  27%                             33%

Taxes                                                       26%                             31%

Safety of their assets                               26%                             27%

Inadequate savings for retirement          26%                             23%

Inflation/Rising interest rates                   24%                             16%

Who knew there were so many things to worry about?

 

PERKS OF PERSEVERANCE

Also from planadvisor:

Participants who remained in their 401(k) in the decade following the Great Recession of 2008 saw their average balances soar 466%, from $52,600 in the first quarter of 2009 to $297,700 in the first quarter of 2019.

 

REMEMBER THIS?

From my friend Alex:

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I remember them all.

 

THANK YOU, WOMEN!!!

Inventions by women from my friend Judy:

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THE FUTURE ACCORDING TO RESEARCH AFFILIATES

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https://interactive.researchaffiliates.com/asset-allocation

 

LOOKS LIKE I’M NOT ALONE

In questioning the wisdom of opening up investing in unregistered securities to unsophisticated investors:

State securities regulators are skeptical of the idea of loosening rules surrounding unregistered securities to allow ordinary investors to buy them.

“Earlier this year, the Securities and Exchange Commission issued a concept release focused on simplifying and harmonizing regulations on the sale of nonpublic investments, or private placements. Under current rules, individuals need to meet certain income and wealth thresholds to make such purchases.”

https://www.investmentnews.com/article/20190912/FREE/190919968/state-regulators-are-skeptical-about-expanding-private-offerings-to

 

THINKING OUTSIDE OF THE BOX

Woman uses hair dryer to stop speeders

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The Montana Highway Patrol awarded a grandmother with the unofficial title of “honorary state trooper” after she has attempted to slow down speeders in her neighborhood using a hair dryer.

https://www.cnn.com/videos/us/2019/09/14/montana-woman-uses-hair-dryer-to-stop-speeders-pkg-vpx.kpax

 

2019 TAX SEASON AT A GLANCE

Journal of Accountancy:

Total returns received             $141.6 million

F-filings, by tax professionals $71.7 million

E-filings, self-prepared            $56.2 million

Total refunds                           $101.6 million

Average refund                       $2,729

 

WHAT THE EXPERTS EXPECT

Journal of Accountancy survey of 785 CPA decision-makers, August 2019:

Portion of financial leaders who felt positive about the U.S. economic outlook in the second quarter : 57%

Portion who were positive about the global economy: 35%

Portion who cited inflation concerns: 29%

Portion who had inflation concerns at the end of 2018: 49%

 

STRESSED

From my friend Taft:

The bad news from a NAPFA Survey (but the good news is financial planning can help):

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https://www.napfa.org/the-state-of-financial-planning-in-america

 

THE FUTURE REALLY AIN’T WHAT IT USED TO BE (MAYBE)

Google Claims “Quantum Supremacy,” Marking a Major Milestone in Computing

In what may be a huge milestone in computing, Google says it has achieved “quantum supremacy,” an experimental demonstration of the superiority of a quantum computer over a traditional one.

The claim, made in a new scientific paper, is the most serious indication yet that the promise of quantum computers—an emerging but unproven type of machine—is becoming reality, including their potential to solve formerly ungraspable mathematical problems…

“While our processor takes about 200 seconds to sample one instance of the quantum circuit 1 million times, a state-of-the-art supercomputer would require approximately 10,000 years to perform the equivalent task,” the researchers said.

The researchers estimate that performing the same experiment on a Google Cloud server would take 50 trillion hours—too long to be feasible. On the quantum processor, it took only 30 seconds, they said.

https://fortune.com/2019/09/20/google-claims-quantum-supremacy/

 

IT’S NOT EASY

Some investors believe investing is a game easily won and the best opportunities are in exotic investments. A few tidbits from a recent story about Harvard’s Endowment might help frame that unreality.

Harvard Was “Freaking Out”: How A $270 Million Bet Tanked

“Colin Butterfield was frantic. The Harvard University endowment executive wanted to unload a disastrous $270 million investment in Brazilian farmland. But the school had no takers, and it was burning through millions of dollars…Harvard’s fear manifests itself in 2,000 pages of Brazilian court records…

“The documents, many in Portuguese, offer a window into a debacle that has contributed to the lackluster performance of the world’s largest college endowment. Part of the reason: Harvard’s backfired bet on the most exotic of investments, direct holdings of agriculture in the developing world.

“Auditors wrote down the value of the Brazil farm project by about $200 million after the endowment decided to exit the development in 2017, according to the lawsuit. Even for Harvard, which has a $39 billion endowment, that’s a steep sum, about as much as the Ivy League school spends annually on undergraduate financial aid.”

https://www.fa-mag.com/news/harvard-was–freaking-out—how-a–270-million-brazil-bet-tanked-51859.html

 

WELCOME TO THE FUTURE

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AND MORE “I’M OLD”

  • Bonanza premiered 60 years ago
  • The Beatles split 50 years ago
  • Lafon Premier nearly 52 years ago
  • The Wizard of Oz is 80 years old
  • Jimi Hendrix and Janis Joplin have been dead 49 years
  • Back to the Future is 35 years old
  • Saturday Night Fever is 42 years old
  • The Corvette turned 66 this year
  • The Mustang is 55. 

 

INDIVIDUAL STOCK INVESTING INCREASES RISK

Before you decide to do a bit of individual stock picking, consider the following:

Larry Swedroe, one of the most thoughtful, academically practitioners I know, wrote an interesting review in Advisor Perspectives, a publication sharing ideas of experienced practitioners. Here are a few items from Larry’s contribution.

“A study in the Journal of Financial Economics, looking at overall returns from 1926 through 2015, and including all common stocks listed on the NYSE, Amex and NASDAQ exchanges.  Returns are inclusive of dividends and thus assume investors reinvest dividends in the stocks that paid them. The study found that only 47.7% of all annual returns were larger than the one-month Treasury rate…

“The conclusion here is that owning stocks is not unlike playing the lottery; you need to hold a majority of the tickets in order to justify playing at all. Of course, you have a better-than-even chance of winning a stock market investment, but you need to be diversified to have a break-even chance.  Most stocks have negative risk premiums…

“Yet another study covering the period 1983 through 2006 focused on the Russell 3000 index.  The index produced an annualized return of 12.8% and a cumulative return over that time period of 1,694%. But the mean annualized return of the 3,000 stocks was -1.1%.  39% of stocks lost money during the period and 19% lost at least 75% of their value, before considering inflation. Just 25% of the stocks were responsible for all the market’s gains.”

https://www.advisorperspectives.com/articles/2019/09/17/individual-stock-investing-increases-risk

 

2.96 MILLION?! WHO KNEW?

“Passive proliferation slows, with 770,000 indexes scrapped in 2019. But the  number of fixed-income indexes expanded, as did ESG indexes.”

The seemingly inexorable march of passive investing looks to have hit a roadblock.

The number of indexes around the world fell more than 20%, to 2.96 million, in 2019 as benchmark providers scrapped some of their gauges, according to a new report from the Index Industry Association.

If I’d been asked, I would have guessed a few hundred—certainly far fewer than a thousand.

https://www.investmentnews.com/article/20191016/FREE/191019949/passive-proliferation-slows-with-770000-indexes-scrapped-in-2019

 

BANK OF AMERICA DECLARES ‘THE END OF THE 60/40’ STANDARD PORTFOLIO

“Investors have long been told that the ideal portfolio should carry 60% of its holdings in equities and 40% in bonds, a mix that provides greater exposure to historically superior stock returns, while also granting the diversification benefits and lower risk of fixed-income investments.

But in a research note published by Bank of America Securities titled ‘The End of 60/40,’ portfolio strategists Derek Harris and Jared Woodard argue that ‘there are good reasons to reconsider the role of bonds in your portfolio,’ and to allocate a greater share toward equities…

“The future of asset allocation may look radically different from the recent past.” they wrote, “and it is time to start planning for what comes after the end of 60/40.”

The idea that any specific allocation is “ideal” for all investors is nonsense. I also hope that no one has a fixed asset allocation that is not frequently reviewed. The concept is not “buy and forget” but “buy and manage.” Although our allocations are strategic, they are constantly reviewed and do change over time.

https://www.marketwatch.com/story/bank-of-america-declares-the-end-of-the-60-40-standard-portfolio-2019-10-15?rss=1&siteid=rss

 

THE REPORTS OF MY DEATH ARE GREATLY EXAGGERATED

Same song, second verse….

Some earlier headlines from my associate Marcos.

  • “Why the 60/40 Asset Allocation Rule is Dead”—April 25,2013
  • “Death of the 60/40 portfolio”—February 20, 2015
  • “60-40 Is Dead”—October 29,2015 

 

MORE ON THE 60/40

Also from my associate Marcos:

The 60/40 portfolio passed away on October 16, 2019, from complications of low interest rates and a bad case of Fed manipulation. This is the twenty-seventh time 60/40 has died in the past decade but enemies market timing, day traders, and alternative investments are hopeful it will stick this time around.

60/40 was 91 years old and lived a long and prosperous life, returning more than 8.1% a year. This nearly matched the return of 60/40’s best friend, the S&P 500 (9.5%), but it did so with 40% less volatility.

60/40 was such a bright light in a world often full of darkness. It was down in just 20 of its 91 years on this planet. And it was just four years old when it had its worst year in 1931 (down 27%). 60/40 finished out its life strong, returning an astonishing 10.2% per year from 1980–2018 with just five down years over the past 39 years. That was much better than the 6.9% annual return from the day the portfolio was born in 1928 through 1979.

There were some lean years when 60/40 was learning how to walk early on. After rising 27% by the time it turned one, 60/40 fell 40% over the next four years during the Great Depression.

60/40 set a good example, as it was the most popular benchmark against which other investment portfolios often compared themselves. Many were envious of the performance of the 60/40 portfolio because it was so simple. They could never wrap their heads around the fact that a mix of stocks and bonds, rebalanced periodically, could outperform so much of the professional investment universe.

I’ve shared many a conversation with 60/40 over beers about how complex so many professional investors try to make their portfolio. 60/40 would often shake its head and laugh when thinking about it. I’ll miss those conversations.

Two of 60/40’s most redeeming qualities were balance and risk mitigation. There were just four times in the portfolio’s 91-year history that both stocks and bonds fell during the same year: 1931, 1941, 1969, and most recently in 2018.

60/40 was always there for its investor friends when they needed it, but it did have a wild side that would rear its ugly head from time to time. The stock portion of its personality was down 25 years of its 91-year lifetime. The average loss for stocks during those 25 years was more than 13%. But 60/40 had a more stable, rational side of its personality that balanced out these wild times. During those 25 down years in the stock market, bonds averaged a gain of more than 5%, dampening some of the losses and allowing 60/40 to live to fight another day when things got bad.

60/40 was remarkably stable and someone you could count on over the long haul. It never had a 10-year period where it lost money. Many of you will remember that 10-year stretch from ’82 to ’91 where 60/40 went on a ridiculous run, returning nearly 350%. In five out of those 10 years, it saw returns of more than 20% and four of those years were over 30%! We all had a blast despite that wicked hangover from the Black Monday party in 1987.

But even when things were the bleakest, from 1929–1938, 60/40 still earned a respectable 20% total return, even in the face of mounting adversity.

Investors will now have to grapple with the fact that with the passing of the 60/40 portfolio, diversification is also dead. One of 60/40’s early mentors, Peter Bernstein, once said, “Diversification is the only rational deployment of our ignorance.” It’s a shame we will now have to figure out other ways to deploy our ignorance if stocks and bonds no longer offset one another.

It’s sad because 60/40 didn’t have to end this way. Investors could have simply diversified more widely across different geographies, asset classes and strategies, saved more money or adjusted their expectations.

60/40 is survived by its immediate family—wife, asset allocation, and children Vanguard, rebalancing and comprehensive investment planning. Distant relatives include crypto, pot stocks, and technology IPOs, but they were all left out of the will.

Donations can be made to your own IRA, 401k, or brokerage account on a regular basis in 60/40’s honor.

RIP, 60/40 portfolio. You will be missed. I hope to see you again someday in the big retirement portfolio in the sky, where interest rates are always 6% and stock market valuations never go above 15 times the previous 10 years’ worth of average earnings.

https://awealthofcommonsense.com/2019/10/a-eulogy-for-the-60-40-portfolio/ 

 

MY NEVER-ENDING SOAPBOX: REGULATION BEST INTEREST

I placed this at the end in case you’re in the mood for some serious stuff.

The debate over Congressional, regulatory and court activities regarding the issues related to protecting investors interest in the financial world has been going on for decades, but it has reached a fever pitch in the last year or so. The latest manifestation is the SEC’s release of what has become known as the “Best Interest Rule.”

Let me preface this with the observation that, as readers of my past NewsLetters know, I’m extremely biased on this subject.

Below are excerpts from the SECs new Rule and my thoughts noted in brackets and indented.

“SEC adopts rules and interpretations to enhance protections and preserve choice for retail investors in their relationships with financial professionals.

“With the adoption of this package, regardless of whether a retail investor chooses a broker-dealer or an investment advisor (or both), the retail investor will be entitled to a recommendation (from a broker-dealer) or advice (from an investment advisor) that is in the best interest of the retail investor and that does not place the interests of the firm or the financial professional ahead of the interest of the retail investor…”

[From the dictionary:

Recommendation – a suggestion or proposal as to the best course of action, especially one put forward by an authoritative body. Synonym : advice

Advice – guidance or recommendations offered with regard to prudent future action

Begs the question: if there is no fundamental difference between suitability (brokers) and fiduciary (registered investment advisors) as reflected below, why not just hold everyone to the fiduciary standard?]

“This rulemaking package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisors in line with reasonable investor expectations…”

[As you read this, you decide if it’s in line with reasonable expectations. I’ve been practicing for over 30 years and don’t find it remotely reasonable.]

Solely Incidental Interpretation

The broker-dealer exclusion under the advisor act excludes from the definition of investment advisor – and thus from the application of the Advisers Act – a broker or dealer whose performance of advisory services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation for those services. The interpretation confirms and clarifies the Commission’s interpretation of the “solely incidental” prong of the broker-dealer exclusion of the Advisers Act. Specifically, the final interpretation states that a broker-dealer’s advice as to the value and characteristics of securities or as to the advisability of transacting and securities falls within the “solely incidental” prong of this exclusion if the advice is provided in connection with, and is reasonably related to, the broker-dealer’s primary business of effecting securities transactions.

[This is the opening big enough to drive not just a truck through but a battleship. When you look at the ads of the major wirehouses, ask yourself if they sound like something “solely incidental” to the “business of effecting securities transactions” or comprehensive planning advice:

Merrill Lynch: It all starts with you. Your life. Your priorities. Our advice and guidance.

Morgan Stanley: Wealth Management. We help individuals reach their long-term financial goals.

Prudential: Whether you’re a DIYer or prefer a professional’s approach, our mutual funds, ETFs and personalized portfolios – delivered the way you want – can help you live the financial life you dream about. Your personalized investing solutions await.

Edward Jones: Before we can develop an investment strategy for you, we get to know you. Why are you investing? What do you want to do? This is your financial future. It shouldn’t be left to chance or some off-the-shelf plan.

Please understand, I believe these are all commendable services; however, they are not brokerage services, they are investment advisory services and should be subject to a fiduciary duty.]

“An investment advisor owes a fiduciary duty to its clients under the Advisers Act a duty that is established by an enforceable through the Advisers Act. This duty is principles-based and applies to the entire relationship between an investment advisor and its client.”

[Yep, I agree, and it should apply to ALL firms who provide investment advice.]

Reg B ban on sales contest

“… Would not prevent a BD from offering only proprietary products, placing material limitations on the menu of products or incentivizing the sale of such products through its compensation practices, so long as the incentive is not based on the sale of specific securities or types of securities within a limited period of time.”

[Wow, that really is going to protect the public.]

Standard of Conduct

If you are a broker-dealer that provides recommendations subject to regulation best interest, include [emphasis required]: “When we provide you with a recommendation, we have to act in your best interest and not put our interests ahead of yours. At the same time, the way we make money creates some conflicts with your interest.

“If you are an investment advisor, include [emphasis required]: “When we act as your investment advisor, we have to act in your best interest and not put our interest ahead of yours. At the same time, the way we make money creates some conflicts with your interest.

[Okay, can anyone really argue that this distinction is “reasonable”? Can you figure out the difference between a broker-dealer and an investment advisor? To me, they sound like two peas in a pod, both swimming in a sea of similar conflicts. Horsepucky!]

Don’t forget to ask whoever you’re getting advice from to sign the Oath.

http://www.thefiduciarystandard.org/wp-content/uploads/2015/02/fiduciaryoath_individual.pdf

https://www.investmentnews.com/article/20191008/FREE/191009930/finra-issues-regulation-best-interest-checklist-for-brokers

https://www.sec.gov/rules/final/2019/34-86032.pdf [the full report, all 564 pages]

 

Hope you enjoyed this issue, and I look forward to “seeing you” again.

 

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

 

For previous NewsLetters:

NewsLetter, Volume 12, No. 5 – September 2019

NewsLetter, Volume 12, No. 4 – July 2019

 

 

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

NewsLetter Vol. 12, No. 5 – September 2019

HRE Headshot_01-2019

Harold Evensky CFP® , AIF® Chairman

DEAR READER,

NOT SO GOOD NEWS

Financial Literacy Skills Have Taken a Nose Dive Since the Great Recession

“Younger people had the sharpest drop in their ability to answer four of five financial literacy questions correctly…

It’s been a decade since the Great Recession’s upheaval, and while some measures of Americans’ economic well-being have recovered like the unemployment rate, their financial literacy isn’t one of them.

Between 2009 and 2018, there was an 8% slip in the amount of people who could correctly answer most questions about interest rates, inflation, bond prices, financial risk and mortgage rates — from 42% to 34%.

That “clear trend of declining financial literacy” is one of the worrying signals in a three-year study from the FINRA Investor Education Foundation, the educational arm of the nonprofit organization regulating the brokerage industry.”

https://www.marketwatch.com/story/americans-financial-literacy-skills-have-plummeted-since-the-great-recession-2019-06-26

ARE YOU GOD’S WIFE? A FEW ITEMS TO MAKE YOU SMILE

From Lee

Teacher Debbie Moon’s first graders were discussing a picture of a family One little boy in the picture had a different hair color than the other members. One of her students suggested that he was adopted.

A little girl said, “I know all about adoption — I was adopted …”

“What does it mean to be adopted?” asked another child.

“It means,” said the girl, “that you grew in your mommy’s heart instead of her “tummy !”

************************ *********************

On my way home one day, I stopped to watch a Little League baseball game that was being played in a park near my home. As I sat down behind the bench on the first-base line, I asked one of the boys what the score was.

“We’re behind 14 to nothing,” he answered with a smile.

“Really?” I said. “I have to say, you don’t look very discouraged.”

“Discouraged?” the boy asked with a puzzled look on his face.

“Why should we be discouraged? We haven’t been up to bat yet.”

************************ *********************

An eye witness account from New York City, on a cold day in December some years ago: A little boy, about 10 years old, was standing before a shoe store on the roadway, barefooted, peering through the window, and shivering with cold.

A lady approached the young boy and said, “My, but you’re in such deep thought staring in that window!”

“I was asking God to give me a pair of shoes,” was the boy’s reply.

The lady took him by the hand, went into the store, and asked the clerk to get half a dozen pairs of socks for the boy. She then asked if he could give her a basin of water and a towel. He quickly brought them to her.

She took the little fellow to the back part of the store and, removing her gloves, knelt down, washed his little feet, and dried them with the towel.

By this time, the clerk had returned with the socks. Placing a pair upon the boy’s feet, she purchased him a pair of shoes.

She tied up the remaining pairs of socks and gave them to him. She patted him on the head and said, “No doubt, you will be more comfortable now.”

As she turned to go, the astonished kid caught her by the hand and, looking up into her face with tears in his eyes, asked her:

“Are you God’s wife?”

OH NO!

Lubbock Avalanche-Journal

“What, me worry?”

 MAD Magazine leaving the newsstands after 67-year run.

09-2019_01

CANNABIS: THE INVESTMENT OF THE FUTURE?

Journal of Financial Planning FPA Survey

22%……….Respondents who say they plan to decrease their use/recommendation of individual stocks over the next 12 months

44% ……. Respondents who say they plan to increase their use/recommendation of ETFs over the next 12 months

55%……… Respondents who say clients have asked about investing in marijuana or cannabis stocks/companies in the past six months.

10……….. Number of states, plus Washington, D.C., that have legalized recreational marijuana over the last few years.

$50 billion. Estimated worth of legal marijuana in the U.S. today.

 

CAUTIOUS CEOs

Journal of Accountancy

 5%………. Portion of CEOs in 2018 who said they expected a drop in the growth of global GDP.

29%……..   Portion who said so in 2019

2012……   The last time they were so pessimistic

 

OUTLOOK BLEAK FOR US RETIREMENT SAVINGS

InvestmentNews

“Most Americans aren’t financially prepared for retirement.

About 44% of Americans said their retirement savings are not on track, versus 36% who said they are, according to the Federal Reserve Board’s six annual survey of household economics. The rest of Americans aren’t sure whether their plan is on track or not and one-quarter have no retirement savings or pension whatsoever.

RETIREMENT MONEY

Less Than $10,000…….         19%

$10,000-$99,999……….         31%

$100,000-$499,999……         24%

Over $500,000………….        12%

Don’t Know …………….         14%

 

THE PROBLEM WITH PLUS LOANS

Kiplinger’s Personal Finance

New student loan rates are lower, but parent loans are still no bargain.

COST OF A $31,000 LOAN

FEDERAL STUDENT LOAN….        4.529%            Total Cost…. $38,606

PARENTS PLUS LOAN …               7.079%            Total Cost…. $43,344

 

GOOD LIFE LESSON

One day a schoolteacher wrote on the board the following:

9×1 =     7

9×2 =   18

9×3 =   27

9×4 =   36

9×5 =   45

9×6 =   54

9×7 =   63

9×8 =   72

9×9 =   81

9×10 = 90

When she was done, she looked to the students and they were all laughing at her because of the first equation, which was wrong, and the teacher said the following”

“I wrote that first one wrong on purpose, because I wanted you to learn something important this was for you to know how the world out there will treat you. You can see that I wrote the RIGHT thing nine times but none of you congratulated me for it but you all laughed and criticize me because of one wrong thing I did.”

So this is the lesson:

The world will never appreciate the good you do a million times but will criticize the one wrong thing you do…. DON’T GET DISCOURAGED. ALWAYS RISE ABOVE ALL THE LAUGHTER AND CRTICISM. STAY STRONG.

SPACE

Texas Monthly

Number of people who have walked on the moon 12
Percent who were once Boy Scouts 92%
Weight of lunar rocks, core samples, pebbles, and moon dust the six lunar missions

brought back to earth

 

842lbs

Number of pairs of moon boots that were left on the moon to compensate for the weight

of the 842 pounds of moon rocks

 

12

Number of U.S. flags planted on the moon 6
Number of successful U.S. space shuttle missions 133

 

 CLIENTS CURIOUS, BUT PLANNERS WARY OF CRYPTO

Journal of Financial Planning – FPA Survey

 34%………………          An interesting concept to keep an eye on, but not invest in yet

32%………………           Not a viable investment option

18%………………           A fad that is best avoided

15%………………           A gamble; only worth investing money you can stand to lose

1%……………….           A viable investment option that has a place in a portfolio

 

EYES OF THE BEHOLDER

Planners may not be too fond of crypto but volatility junkies seem pleased. Of course, planners are focused on long-term financial health and it seems many crypto investors are more into entertainment.

 Crypto Conference Shows Bitcoin Getting Whole Lot More Fun Again

As little as six months ago, Bitcoin was moribund, with prices languishing at a fifth of their record high, disappointing a mass of cryptocurrency enthusiasts who had grown used to extreme — and often upwards — moves in the virtual currency.

But this week’s Asia Blockchain Summit in Taipei highlighted how volatility is back, reviving the excitement around crypto trading.

“Bitcoin is fun, but it’s a hell of a lot more fun at 100 times leverage,” said Arthur Hayes, the founder and chief executive officer of the exchange BitMEX. “That’s what people want to see in crypto, they want that high volatility,” he said. “At the end of the day, we’re all in the entertainment business of traders.”

https://www.bloomberg.com/news/articles/2019-07-05/crypto-conference-shows-bitcoin-getting-whole-lot-more-fun-again

 

HERE’S HOW MUCH YOU NEED TO EARN TO BE IN THE TOP 1%. HINT: IT’S A LOT

USA Today

“The Economic Policy Institute (EPI) published a study that looked at income inequality based on 2017 reported wages, and the results may be surprising. While the top 1% obviously outearn the bottom 90% by a considerable margin, you don’t need to make millions each year to join them. And if you consider yourself relatively well-to-do, you may be in the top 5% or 10% already.

Currently, you need to make a minimum of $421,926 per year to be considered in the top 1%, according to the EPI study. But in this crowd, that’s just scraping by. The average annual income among the top 1% is $718,766, and the top 0.1% earn an average of $2,756,865. By contrast, the bottom 90% make an average of just $36,182…

The 1% income threshold varies by state. In New Mexico, you only need to earn $255,429 to join this elite group, while Connecticut residents need a minimum of $700,800. You can view statistics for every state and region, and the country as a whole, on the EPI website

While most of us – by definition – will never join the top 1%, joining the top 10% (or even the top 5%) is attainable for those in well-paying fields. You need to make $118,400 to join the top 10% and $195,070 for the top 5%. Again, these figures don’t include investment income, but they give you a baseline.”

https://www.usatoday.com/story/money/2019/07/10/what-you-need-to-earn-to-be-in-the-top-1/39659489/

 

AH WELL

BRAIN PILLS ARE A BUST – AARP BULLETIN

One in four Americans 50 and older take a supplement for brain health. They are likely flushing dollars down the drain, says a new report by AARP global counsel on brain health…

The study, “The Real Deal On Brain Health Supplements,” says more than $3 billion was spent on memory supplements in 2016, a number that is expected to nearly double by 2023.

“Despite adults’ widespread use of brain health supplements, there appears to be little reason for it,” the study says. “It’s a massive waste of money.”

 

TRUST ME, THE CHECK IS IN THE MAIL

The fiduciary/suitability debate continues. Having lost to big $$ in the national arena, the fight now moves to state regulation. Recently Massachusetts considered a proposal to apply a state-based common law fiduciary standard to broker-dealers’ and investment advisers’ advisory activities. A consortium of organizations including my Committee for the Fiduciary Standard sent a letter to the state in support of the proposal. Below is an excerpt from the letter highlighting the issue:

Here are just a few examples of firms’ marketing materials supporting the conclusion they function as “trusted advisors.”

  • A. Davidson states: “Trust is the cornerstone of the relationship between you, as an investor, and the D.A. Davidson & Co. financial professionals working for you. Your needs should always come first.”
  • Mass Mutual states: “Join millions of people who place their confidence and trust in us.”
  • Raymond James states: “[I]t’s developing a long-term relationship built on understanding and trust. Your advisor is there for you throughout the planning and investing process, giving you objective and unbiased advice along the way.”
  • Schwab states: “A relationship you can trust, close to home.”
  • UBS states: “The UBS Wealth Management Americas approach is based on the trusted relationship of our Financial Advisors and their clients. Our experienced Advisors are committed to understanding clients’ needs and delivering insightful, informed advice to help them realize their dreams.”

The harm to investors is immense when they reasonably, but mistakenly, believe they are getting advice that’s in their best interest based on a trusted relationship with their financial professional. In addition to paying higher costs, investors who rely on biased sales recommendations as if they constituted unbiased advice can end up facing unnecessary risks or receiving substandard returns. Cumulatively, these industry practices drain tens of billions of dollars every year out of investors’ pockets and into the pockets of firms and their financial professionals. According to one study, Massachusetts IRA investors alone lose approximately $491 million a year as a result of conflicted advice. The losses are even larger when considering all types of accounts (retirement and non-retirement) and the full range of products sold within these accounts.

Given how broker-dealers advertise and function as advisers in position of trust and confidence with their customers, it is entirely appropriate to apply a common law fiduciary duty to their advisory activities.

If you’d like to see the entire letter, please let me know.

 

ASSET ALOCATION — SMART, NOT BRILLIANT

From JP Morgan’s most excellent Guide to the Markets 3Q 2019

09-2019_02

SOMEONE MUST BE DEADLY AT SCRABBLE

What happens if you rearrange the letters

From my friend Leon

PRESBYTERIAN: BEST IN PRAYER

ASTRONOMER: MOON STARER

DESPERATION: A ROPE ENDS IT

THE EYES: THEY SEE

THE MORSE CODE: HERE COME DOTS

DORMITORY: DIRTY ROOM

ELECTION RESULTS: LIES — LET’S RECOUNT

SNOOZE ALARMS: ALAS! NO MORE Z’S

 

 PICTURES FOR ‘SENIOR’ PEOPLE

From my #1 son. I think he’s trying to rub it in …

WARNING:  If you are not a senior, you cannot look at these pictures because you will not understand!

09-2019_03

09-2019_04

PROTECTING THE LITTLE GUY

InvestmentNews

 I sure am pleased to see the government protecting the opportunity for the little guy to invest in private placements. The following are excerpts from two articles in the same issue of InvestmentNews:

SEC Wants More Access to Private Placements

“The Securities and Exchange Commission is looking for ways to allow more investors to buy unregistered securities and enable emerging companies more easily to raise capital….SEC Chairman J Clayton has pushed open private markets more widely to ordinary investors so they can be in on the ground floor of the launch of breakthrough companies.”

“Alternative investment advocates assert that such products diversify portfolios and offer investors a way to hedge against general market downturns. Investor advocates warned private placements can be highly risky and often harm investors.”

GPB Reports Huge Value Declines

“In a blow to investors, GPB Capital last Friday reported significant losses in the value of its investment funds which are in the form of private partnerships…The two largest GPB Holdings II and GPB Automotive Portfolio, have seen declines in value, respectively, of 25.4% and 39%….GPB’s five other smaller funds reported declines in estimated value of 25% to 73%, according to GPB.

Having served as an expert witness for decades, I’ve seen all too often how investors, particularly smaller investors, have been devastated by investments in exciting sounding private placements that the neither understood nor appreciated the risk. I vote on the side of investor advocates and believe the SEC should also.

MORE PROTECTING THE LITTLE GUY

“In a letter Tuesday, the American Securities Association accused the CFP Board of subverting the authority of the Security and Exchange Commission by holding certification designees to a standard of service beyond what is required by law.”

https://www.wealthmanagement.com/industry/cfp-boards-private-standards-raise-concerns

How awful and presumptuous of the CFP Board to require higher standards of professionals than the abdominally low ones currently required by law. What are regulators thinking of? If I didn’t know better, I’d think it was a joke. Unfortunately, I do know better and it’s not a joke. If you haven’t yet asked your advisor to sign the Committee for Fiduciary Standards Oath, now’s the time.

https://www.advisorperspectives.com/articles/2012/04/17/harold-evensky-s-fiduciary-oath

MORE GREAT HISTORICAL PICTURES (AND A FEW REPEATS)

From my friend Judy

09-2019_05

09-2019_06

WHAT IS THE SIZE OF THE AVERAGE RETIREMENT NEST EGG?

2019 analysis of more than 30 million retirement accounts by Fidelity Investments found that the average balance in corporate-sponsored 401(k) plans at the end of 2018 was $95,600.

https://finance.yahoo.com/m/d84dcdd6-f54b-3db9-ad85-b7b9d3919510/what-is-the-size-of-the.html

 

TRAGIC NEWS WITH A HAPPY ENDING

Lubbock Avalanche-Journal

“When announcers last July declared Joey Chestnut the winter of Nathan’s Famous hot dog eating contest, spectators had little reason to doubt the score: 64 dogs and 10 minutes.

But the judges, unable to clearly view the contestants’ plates amid all the cups on the table and overwhelmed by the eater’s ability to scarf two or three frankfurters at a time, had undercounted Chestnut by 10 dogs, briefly robbing him of a new world record.

Although judges quickly corrected the score and handed Chestnut his world record, the error caused a small scandal. And it sent organizers of the annual Fourth of July contest scrambling for solutions to avoid a repeat.”

 

I LOVE LUBBOCK

This was a posting on our neighborhood website around July 4th.

“Ziggy ran from our house. Currently wearing a unicorn costume and an American flag.”

I’ll bet I know why Ziggy ran away. Should be easy to find.

 

BITCOIN RESEARCHERS WARN OVER POTENTIAL SUDDEN, SHORT PRICE SURGE

Now, new research has found that national holidays and family gatherings could drive interest in buying bitcoin and other cryptocurrencies when the market is already doing well or improving — suggesting we could be set for a new bitcoin boost this Independence Day weekend, but it might not last.

As families and friends gather for Fourth of July celebrations across the U.S., many will be asked the question: “Have you heard of bitcoin?”

Bitcoin and cryptocurrency awareness, something that was harder to measure before bitcoin’s epic 2017 bull run sent the bitcoin price from under $1,000 per bitcoin to almost $20,000 in fewer than 12 months, appears to be closely tied to the bitcoin price, which gets pushed on by so-called fear of missing out (FOMO), according to bitcoin and crypto prime dealer SFOX’s research team.

“Part of the narrative surrounding [the 2017] unprecedented bull run was that many people were hearing about bitcoin for the first time,” the researchers wrote in a blog post. “Over Thanksgiving dinner, the story goes, Luddites in the family would ask the more tech-savvy among them about this ‘bitcoin’ they’d seen in mainstream news  —  and how could they purchase some ‘bitcoin coins’ for themselves?”

https://www.forbes.com/sites/billybambrough/2019/07/04/bitcoin-could-surge-this-4th-of-july-holiday/#4ec7b1ea1d61

 

A SOBERING CONCLUSION

For investors who want to pick individual stocks.

“Research from Vanguard, the fund house that invented passive funds, showed investors would capture the best returns in the American stock market by owning more than 500 companies.

The firm tested nine separate portfolios made up of varying numbers of shares: one, five, 10, 15, 30, 50, 100, 200, 500, and found the higher number of shares, the better returns.”

https://www.telegraph.co.uk/investing/funds/perfect-number-stocks-hold-portfolio-think/

 

HOW TO BE A HIT ON THE BEACH

https://youtu.be/n3ckybKWhHI

 

CAVEAT EMPTOR 

As much as I like and respect Kiplinger, I remind you that investing based on headlines and good stories is a dangerous strategy. Here’s an example:

Kiplinger Mutual Fund Spotlight

WINNING BY LOSING LESS

“A hefty chunk of cash has helped this small-company fund’s performance.

Cash is always king at Royce Special Equity. Charles Dreifus and Steve Mc Boyle want to have ample funds to snap up shares when they see opportunities. The small-company stock mutual fund typically holds 8% to 10% of its assets and ready money — more than its peers (funds that invest in value-priced small-stocks), which maintain a roughly 3% cash position.”

The article goes on to say, “Overall, the fund’s strategy of winning over time by losing less has earned mixed results. Special equities five-, 10-and 15-year annualized returns, for instance, lag its typical peer and the Russell 2000 index. But the fund has been roughly 15% to 20% less volatile than its peers over those stretches.”

Sounds good, and indeed in 2018 the fund lost about 40% less than its peer universe. However, how did it look over the long term compared to an ETF alternative? For that purpose, I used the iShares S&P Small-Cap 600 Value ETF (IJS), and the answer is, “not so good.”

ROYCE SPECIAL EQUITY INVESTMENT

09-2019_07

When taxes are factored in, the results are even more depressing.

09-2019_08

How about the risk-adjusted argument? Another “not so good.”

09-2019_09  09-2019_10

09-2019_11

I then looked at the fund ranked number one in the story by Kiplinger for one-year returns. Again, the “winning by losing” rationale was a failure. Add to that the fact that the tenure of the three fund managers was just a shade over a year and a half when the article was published highlights my warning of “buyer beware.”

QUAKER SMALL/MEDIUM IMPACT VALUE

09-2019_12

And how about when we factor in taxes?

09-2019_13

And of course, all of these statistics are not very meaningful as all of the managers are fairly new.

MANAGER TENURE

Andrew Cowen           –          1/12/2018

Thomas Lott                –          1/12/2018

Andy Kaufman            –          2/01/2019

 

I’M DEFINITELY GETTING TOO OLD FOR THIS NEW AGE

From American Way Magazine

“Goat yoga is so 2017 … A new class in England’s bucolic Lake district pairs wellness with…lemurs.”

 

I THOUGHT I WAS AN OPTIMIST

Massachusetts police ask residents to refrain from crime until after the heat wave passes
https://www.cnn.com/2019/07/20/us/police-department-heat-wave-stop-crime-trnd/

 

POORLY CORRELATED? NOT SO MUCH

JP Morgan’s Guide to the Markets 3Q 2019

Limited correlation benefits with hedge funds and private equity.

09-2019_14

 

OVER CONFIDENCE — BUY LOW, SELL HIGH

From The NBER Digest “How Strongly Do Expectations About Returns Affect Portfolio Choice?”

Based on a study of Vanguard customers (average age 58.7 with and an average of $467,000 invested with Vanguard). “The survey data show that there is a positive relationship between an investor’s expectation of the return in the next year on the stock portfolio and that investor’s portfolio composition… On average, an investor expecting a 1 percentage point increase in return over the next year increases portfolio equity holdings by about 0.7 percentage points.”

 

REALLY GOOD NEWS!!

“Want to live longer? Drink alcohol, new study says” | USA TODAY 

“A recent study of nearly 8,000 men and women aged 78 to 88 suggests that drinking alcohol at an advanced age might actually increase longevity….

Now, in contrast, a paper titled “Alcohol Consumption in Later Life and Mortality in the United States,” just published in the journal Alcoholism: Clinical and Experimental Research, reports that researchers have found consistent associations between occasional and moderate drinking and lower mortality rates, compared to lifetime abstainers.

Occasional drinkers are those who consume alcohol less than one day a week and who, when they do drink, limit intake to three drinks daily for men, two drinks for women. Moderate male drinkers, indulging on one or more days per week, imbibe one to three drinks while females have one to two.”

https://www.usatoday.com/story/money/2019/07/13/drink-wine-beer-alcohol-at-senior-age-to-live-longer-study-finds/39670541/

 

MOVE OVER MEDITATION

If alcohol doesn’t work, try rage…

“Meditating is one way to reduce stress, pulverizing a porcelain toilet is another — or at least that’s the thinking behind the rise of rage rooms. In the past few years, more than 50 of these facilities have opened around the world, inviting pent-up patrons to pay a fee, put on safety goggles and vandalize their way back to their happy place…”

American Way magazine

 

CHARTS WORTH PONDERING

From JP Morgan’s always fascinating Guide to the Markets 3Q 2019

09-2019_15

09-2019_16

09-2019_17.png

WHERE DOES THE TIME GO?

According to the Pew Research Center, which has analyzed the ATU surveys [Bureau of Labor Statistics and its American Time Use Surveys], Americans age 60 and older sleep just over 8½ hours a day, on average. About seven hours are spent on leisure; three hours on chores and errands; a little more than one hour on eating; about one hour on personal activities, such as grooming and health care; and just under an hour on unpaid caregiving and volunteering.

Work remains part of the equation, as well. Men age 60-plus spend two hours a day, on average, on paid work; women age 60-plus spend one hour and 12 minutes.

Looking more closely at leisure, the average person age 60-plus spends the bulk of their leisure time — about 4¼ hours each day — in front of a television, computer, tablet or other electronic device. (That’s an increase of almost 30 minutes in the past decade.) The balance of leisure time is spent, among other activities, on socializing, reading, listening to music, attending events, etc.

https://www.wsj.com/articles/what-people-do-in-retirement-hour-by-hour-11562338744

 

 MORE OLDER THAN DIRT

 I have a little “nostalgia” book with “Remember When” for my birthday year — 1942

World News:         Lieutenant Cornel Doolittle leads a bombing group over Tokyo.

National News:    The Manhattan Project begins; zoot suits are a fashion statement for men; Kellogg’s  Raisin Bran and instant coffee introduced.

Life Expectancy:   62.9 years

Cost of Living:       New house: $3,775; new car: $920; average income: $1,885/year; movie ticket: 30 cents; gas: 15 cents; bread: 9 cents/loaf

1942 Birthdays:    Wayne Newton, Annette Funicello, Harrison Ford, Muhammad Ali, Aretha Franklin, Sandra Dee, Barbara Streisand, Tammy Wynette

Movies:              Casablanca, Bambi, Mrs. Miniver

Music:                 Jingle, Jangle, Jingle; White Christmas; Deep in the Heart of Texas [Yes!]

 

INVESTORS IMPERILED?

AARP says new SEC rule fails to protect retirees. AARP BULLETIN

“Investing for retirement will be less safe and more confusing under a new Securities and Exchange Commission regulation governing the actions of stockbrokers and investment advisors, AARP and others say… . The new regulation best interest rule, adopted 3-1 in June by the SEC commissioners, doesn’t protect investors, critics say. Under the rule, no one is required to offer advice or recommendations that put the interest of investors first, AARP and other critics say. ‘As a result, conflicts will continue to taint the advice American investors received from brokers,’ says SEC Commissioner Robert Jackson Junior, the dissenting vote.

AARP agrees. ‘This rule will have a negative impact on the ability of Americans to save and invest for retirement,’ says Nancy LeaMond, AARP’s Executive Vice President and Chief Advocacy and engagement officer.”

Seems I have good company with my frustration regarding the new SEC regulation.

THE PENSION CRISIS AT CONGRESS’ DOOR

AARP BULLETIN

Pensions that have been cut or approved for cuts……………………………………..…… 90,000

Workers and retirees whose plans are expected to run out of money…………..1,300,000

 

POLICE HUMOR

From my friend Alex

09-2019_18

ONE MORE ‘DIG DEEPER’

AND THE NO. 1 STOCK FUND MANAGER IS…

Wall Street Journal

“The winner: Dennis Lynch, head of the Counterpoint Global team at Morgan Stanley Investment Management and manager of Morgan Stanley Institutional Discovery Portfolio (MPEGX) — which romped across the finish line with a 30.8% return for the trailing 12 months ended June 30.”

https://www.wsj.com/articles/and-the-no-1-stock-fund-manager-is-11562638561?mod=flipboard

IWP is the iShare Russell Mid Cap Growth

09-2019_19.png

09-2019_20

09-2019_21

A WORD OF WARNING FROM KIPLINGER’S

Although I’m a user of Angie’s List, Kiplinger’s says to take the recommendations with a grain of salt.

“Angie’s List was founded in 1995 to help consumers pick reliable home-service providers. But in 2017 when it was bought by the same company that owns homeadvisor.com, it changed the way it does business. Now, instead of charging an annual fee, Angie’s List is free — it’s funded almost entirely by advertising and referral fees from the companies it evaluates. A recent report from the nonprofit Consumer Federation of America (www.consumerfed.org) explains how that arrangement undermines the usefulness of the ratings and the ‘short list of top-rated pros’ users receive.

CFA recommends that if you use Angie’s List read the detailed consumer comments for A-rated businesses with at least 25 comments, and pay extra attention to comments that are negative…. Always double-check a pro’s reputation with the Better Business Bureau (www.bbb.org), ask to see proof of licensing and insurance, and check references.”

 

PONDERISMS

From my special friend Patti

  • Why do peanuts float in a regular Coke and sink in a Diet Coke? Go ahead and try it.
  • Why do you have to “put your two cents in” but it’s only a “penny for your thoughts?” Where’s that extra penny going?
  • What disease did cured ham actually have?
  • How is it that we put man on the moon before we figured out it would be a good idea to put wheels on luggage?
  • Why is it that people say they “slept like a baby” when babies wake up like every two hours?
  • Why are you IN a movie, but you’re ON TV?
  • Why do toasters always have a setting that burns the toast to a horrible crisp, which no decent human being would eat?
  • Why do the Alphabet song and Twinkle, Twinkle Little Star have the same tune?
  • Why did you just try singing the two songs above?
  • How did the man who made the first clock know what time it was?

 

POT CALLING THE KETTLE BLACK?

Don’t Listen to Your Market Guru

In his Real Money column Tuesday morning, Cramer had some advice for investors who are listening to market pundits and basing their stock picks or trades off of them. Cramer’s take? Make up your own mind.

Here’s a snippet of what Cramer has to say about those who are following the words of a market pundit. “I am simply saying that once again we listened to a guru — a word I hate — and the guru was full of sound and fury but signifying nothing having to do with the stock market.”

https://www.thestreet.com/video/jim-cramer-earnings-season-apple-snap-15028757?puc=_htmltsc_pla1&cm_ven=EMAIL_htmltsc&tstmem=165571391&utm_source=newsletter&utm_medium=email&utm_campaign=TSC&utm_term=BREAKING+NEWS%3A+Don%27t+Trust+the+Market+Gurus%3A+Jim+Cramer+on+Earnings%2C+Apple+and+Snap+-+Live+at+10+a.m.+ET

 

UNCLE HAROLD’S BARN GOOD CHIPS

They’re not just good, they’re GREAT! (sorry, no sample)

09-2019_22

UPSIDE DOWN

A Danish bank is offering mortgages at a 0.5% negative interest rate — meaning it is basically paying people to borrow money

“Jyske Bank, Denmark’s third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers will pay back less than the amount they borrowed…Many investors fear a substantial crash in the near future. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet.”

https://www.businessinsider.com/danish-bank-offers-mortgages-at-negative-interest-rates-2019-8

 

MORE OLD PICTURES

If you’re old enough to remember who these people are – from Peter

09-2019_23

09-2019_24.png

Hope you enjoyed this issue, and I look forward to “seeing you” again.

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

For previous issues:

NewsLetter Vol. 12, No. 4 – July 2019

NewsLetter Vol. 12, No. 3 – May 2019

 

 

 

 

 

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

 

 

NewsLetter Vol. 12, No. 4 – July 2019

HRE Headshot_01-2019

Harold Evensky CFP® , AIF® Chairman

DEAR READER,

 

SUCCOTASH

Mixing vegetables together may be fine for food (although it’s not my favorite), but it’s nonsense in the investment world. When you hire a money manager (e.g., a mutual fund), do you really care how good his or her sibling managers are if he or she is awful? Do your due diligence on the fund, not the family.

07-2019_01

THE LEAST EXPENSIVE U.S. CITIES FOR RETIREES

07-2019_02

Y’all come!

https://www.thestreet.com/personal-finance/real-estate/least-expensive-us-cities-for-retirees-14956443

 

ON THE OTHER HAND…DEPRESSING

Florida is the No. 1 state for fraud and the No. 4 for identity theft. Florida was the top state for formal reports of fraud to the federal government in 2018. Floridians made about 205,400 fraud reports last year, amounting to an average loss of $400.

 

https://www.floridatrend.com/article/26849/wednesdays-afternoon-update

 

MOUTH AGAPE FROZEN

Also balderdash and horsepucky!

From InvestmentNews:

SEC commissioner Hester Peirce said the proposal to raise advice requirements for brokers will result in a standard for them that is stronger than the fiduciary duty investment advisers must meet.

“We have this new standard, which is something more than suitability,” Ms. Peirce said at an Institute for Portfolio Alternatives conference in Washington on Tuesday. “When you lay it side-to-side against the fiduciary standard, I think one could argue that it’s a stronger standard because it does require mitigation or elimination of conflicts in a way the fiduciary standard does not.”

I won’t bother to detail what insulting nonsense this is, but I would be happy to chat with anyone who is interested. Alternatively, ask any knowledgeable attorney how the “new suitability” standard can possibly be stronger than the RIA standard of the Investment Advisers Act of 1940.

It obviously begs the question: if it is indeed a stronger standard, why does the brokerage industry spend millions of dollars trying to prevent the enactment of a fiduciary standard? Why not just make brokers subject to the ’40 Act? A cheap and simple solution.

https://www.investmentnews.com/article/20190508/FREE/190509930/sec-commissioner-hester-peirce-says-reg-bi-is-stronger-than

 

SAY IT ISN’T SO!

Classic Board Game Monopoly Gets a Modern Makeover Using Digital Technology to Go Cashless

  • Hasbro created a version that uses digital assistant technology like Amazon Echo.
  • The technology is set to make cheating in the board game a thing of the past.
  • Monopoly will be a voice-activated banker, broadcast from a smart speaker.
  • Playing pieces will each have a button so the players can activate transactions.

Cashless??!! That’s not Monopoly!

https://www.dailymail.co.uk/news/article-7177397/Classic-board-game-Monopoly-gets-modern-makeover-using-digital-technology-CASHLESS.html

 

MAKING MONKEYS OUT OF SOME INVESTING GURUS*

More picking on active managers reported in the Wall Street Journal:

No animals were harmed in this financial experiment, but some human egos were bruised…

The results were brutal. Heard columnists, not monkeys, threw the darts at newspaper stock listings…. The columnists’ eight long and two short picks beat the pros’ selections by a stinging 22 percentage points in the year through April 22. Only 4 of 12 of the Sohn picks even outperformed the S&P 500.

*Wall Street’s best and brightest investors participate in this unique, “must attend” event to share their expertise with an audience of more than 3,000 people, comprised of portfolio managers, asset allocators and private investors. Most speakers manage large proprietary investment portfolios that have outperformed the market for many years and do not share their insights in any public forum, but they volunteer their time to The Sohn Investment Conference for the benefit of The Foundation.

https://www.wsj.com/articles/making-monkeys-out-of-the-sohn-investing-gurus-11557115260

 

WHO KNEW?

From Forbes:

Those oh-so-handy USB power charging stations in the airport may come with a cost you can’t see. Cybercriminals can modify those USB connections to install malware on your phone or download data without your knowledge.

“Plugging into a public USB port is kind of like finding a toothbrush on the side of the road and deciding to stick it in your mouth. You have no idea where that thing has been,” says Caleb Barlow, Vice President of X-Force Threat Intelligence at IBM Security. “And remember that that USB port can pass data.”

It’s much safer to bring your regular charger along and plug it into a wall outlet or, alternatively, bring a portable power bank to recharge your phone when you’re low on bars.

https://www.forbes.com/sites/suzannerowankelleher/2019/05/21/why-you-should-never-use-airport-usb-charging-stations/#4d7456495955

 

INVESTORS SEEM TO BE CATCHING ON

From Morningstar:

07-2019_03.png

https://fundflows.morningstar.com/fundflows/marketsummary.aspx

 

MORE KATIE

Our partner Katie continues to learn about Lubbock infrastructure. She got to drive the airport fire truck, shoot the 19-inch hose and shoot a Taser at the police department. (“Luckily my suspect was cardboard and not moving!”)

07-2019_04            07-2019_05

 

SOME GOOD ADVICE FROM VANGUARD

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Changing Market Leadership

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Positive International Outlook

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Volatility Reduction

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https://advisors.vanguard.com/iwe/pdf/FAWHYINT.pdf

 

GUESS WHO’S OLDER THAN DIRT

17 out of 17!

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AND IF I HAD ANY DOUBT

From The Hollywood Reporter:

It’s not just a game for the 250 million players who are eschewing traditional social media, Netflix and other leisure activities in favor of community events like Marshmello’s virtual concert.

Fortnite isn’t just a game—it’s also social media. So says a study from National Research Group, which provides a telling snapshot of the new attention economy. Fortnite players spend more of their free time logging into the battle royale game than they do scrolling through Facebook and Instagram or streaming on Netflix and YouTube.

In the two years since its July 2017 launch, Fortnite has grown into a global phenomenon with more than 250 million active players (82 percent under age 35) and $2.4 billion in annual revenue. Netflix CEO Reed Hastings was onto something when he noted in January that the streamer “competes (and loses) more with Fortnite than with HBO.” According to NRG, Fortnite players spend 21 percent of their free time with the game.

https://www.hollywoodreporter.com/news/fortnite-eclipses-facebook-instagram-as-tweens-preferred-social-platform-1217335

And I’ve never even heard of Fortnite! I’m definitely older than dirt!

 

BUFFETT ON GOLD

From Investment Advisor:

Buffett made his first investment, of $114.75, in 1942. In a no-fee S&P 500 index fund with dividends reinvested, that money would have grown to $606,811. The same amount invested in 3¼ ounces of gold would now be worth about $4,200. That’s “less than 1% of what would have been realized from a simple unmanaged investment in American business,” says Buffett. “The magical metal was no match for the American mettle.”

 

BEWARE

From CNN:

If you get a call from an unfamiliar number that rings once and hangs up, don’t call back. The Federal Communications Commission is warning people about a new phone scam, which they’re calling the “one ring” or Wangiri scam. (Wangiri is Japanese for “one ring and drop.”)

The scam works like this: A scammer places a robocall to a number and hangs up after one or two rings. They may call back several times. The idea is to get the caller to call the number back. When they do, the caller is prompted to pay long distance fees to connect the call, fees that are usually paid in part to the scammer.

https://www.cnn.com/2019/05/07/us/fcc-robocall-scheme-scam-warning-trnd/index.html

 

WOW!!

The Indian Army says it found yeti footprints in the Himalayas. Stay tuned—the Loch Ness monster and Golden Asteroids are next.

07-2019_11.jpg

https://www.nbcnews.com/news/world/indian-army-says-it-found-yeti-footprints-himalayas-n999951

 

PLACES TO GO

DEPARTURES –  CITY GUIDES

https://www.departures.com/city-guides/barcelona

https://www.departures.com/city-guides/paris

https://www.departures.com/city-guides/london

https://www.departures.com/city-guides/new-york-city

https://www.departures.com/city-guides/rome

https://www.departures.com/city-guides/lisbon

https://www.departures.com/city-guides/tel-aviv

 

SOME GOOD NEWS

From Wealth Management:

N.J. Governor Vetoes Bill Saying Insurance Agents Are Not Fiduciaries

Gov. Phil Murphy said the bill runs counter to the state’s efforts to improve consumer protections, including its recent fiduciary rule proposal for financial advisors.

New Jersey Gov. Phil Murphy has been an outspoken proponent of the state’s proposed fiduciary rule, which he called “some of the strongest investor protections in the nation.” So when a state bill was passed that would eliminate a fiduciary standard for insurance producers, he, naturally, vetoed it…

He recommended the legislature remove section 1 of the bill, which “prohibits a cause of action against an insurance producer arising from transactions involving property and casualty insurance or a health benefits plan where the cause of action is based on a fiduciary duty.” He believes that will also leave it open for lawmakers to impose a fiduciary duty on insurance producers.

He also suggests the removal of the third section of the bill, which would require the insurance agent to notify clients that information about their compensation is available, rather than disclose that information to the client directly. And they’d have to include only information about compensation that’s based on a percentage of the premium.

A recently proposed rule by the state’s Bureau of Securities would require all financial advisors registered in the state to act as fiduciaries, making New Jersey one of the first states to propose a uniform fiduciary standard for all financial services professionals.

The rule would apply to recommendations on investments; opening or transferring assets into any kind of account; and the purchase, sale or exchange of any security. A broker or advisor has to make “reasonable inquiry” in the best interest of their client, and any recommendations offered cannot be made with regard to a financial interest of the broker, advisor or any other third party.

The SEC has said it intends to release a final rule on its Regulation Best Interest this fall. This regulation is expected to require more robust disclosure procedures to ensure that brokers are acting in the “best interest” of a client, though critics contend this would fall short of the fiduciary duty demanded of investment advisors; New Jersey’s rule stressed that disclosing conflicts alone would not suffice in protecting investors.”

https://www.wealthmanagement.com/regulation-compliance/nj-governor-vetoes-bill-saying-insurance-agents-are-not-fiduciaries

 

COOL TIP

From One Mile at a Time:

Using FlightAware to check inbound flight status

There’s one cool hack that many people aren’t aware of that makes this really easy. FlightAware is a flight tracking website, and it will also show you where your plane is coming from. Just enter the flight number for your journey.

Then when you see the map for your flight, on the right side you should see a section that says “track inbound plane.” Just click that, and you’ll see where the plane is coming from.

https://onemileatatime.com/track-inbound-plane/

 

DEPRESSING

Journal of Financial Planning Stat Bank:

65…Percent of people surveyed who said they mistrust the financial services industry to some degree.

2…Percent of people surveyed who said they trust financial professionals “a lot.” (We work hard to be in that 2%.)

21…Percent of people who understand the difference between a planner who is a fiduciary and one who is not. (I hope regular readers of my NewsLetter know the difference!)

50…Percent of investors who work with a financial advisor who know for certain their advisor is a fiduciary. (I hope my readers and our clients know that we are fiduciaries.)

 

YOU READ IT HERE FIRST!

07-2019_12.png

https://www.foxnews.com/tech/loch-ness-monster-might-be-real-according-to-new-scientific-study

 

AND IF THE YETI AND LOCH NESS MONSTER DON’T GET YOU EXCITED, HERE’S AN ITEM FROM DAVID THAT MIGHT

07-2019_13.png

The Golden Asteroid That Could Make Everyone on Earth a Billionaire

Whether it was the Big Bang, Midas or God himself, we don’t really need to unlock the mystery of the origins of gold when we’ve already identified an asteroid worth $700 quintillion in precious heavy metals.

If anything launches this metals mining space race, it will be this asteroid—Psyche 16, which is somewhere between Mars and Jupiter and carries around enough heavy metals to net every single person on the planet close to a trillion dollars.

The massive quantities of gold, iron and nickel contained in this asteroid are mind-blowing. The discovery has been made. Now it’s a question of probing it.

NASA plans to do just that, beginning in 2022.

https://www.rt.com/business/462703-golden-asteroid-everyone-billionaire/

 

SNAKE OIL SELLS

My partner Lane shared an interesting marketing piece with me.

Investment Strategies

Defensive Alpha

Our Defensive Alpha portfolios aim to reduce market drawdowns without sacrificing participation in rising markets. These strategies seek to invest in a global allocation of market blend indices during rising markets, but attempt to exit to defensive, low volatility stocks in the early stages of market declines. When markets rebound, the portfolios are expected to return to a growth posture.

Unconstrained Tactical

Our Unconstrained Tactical strategies attempt to track global allocations of market blend indices during rising markets, but seek to exit to cash or more stable fixed income assets as prices start to move lower. When markets begin to rebound, the portfolios attempt to return to fully invested positions. Because these strategies seek to exit to cash, they are a means of attempting to gain access to above inflation returns with robust loss avoidance.

 

I’m obviously a massive skeptic. The key words are attempts and seeks—“attempts to exit” and “attempts to track” and “attempts to return” and “attempting to gain” and “seeks to exit.” With an eye on possible customer complaints, there are no promises here, but lots of attempting and seeking.

In the last few hundred years, no manager has done this successfully over long periods of time, but I guess hope springs eternal. We’re still passionate believers that successful investing is not timing the market but time in the market.

 

COOL HISTORY

 

 

PERCEPTION vs. REALITY:

Causes of Death in the United States

07-2019_24.png

NOT SURE IF I COULD BRING MYSELF TO EAT THEM—MAYBE IF IT WAS A BOTTLE OF WINE

Two melons sold at a Japanese auction for $45,000

07-2019_25.png

https://www.foxnews.com/food-drink/two-melons-sold-at-japanese-auction-for-45k-to-first-time-bidder-report

CAVEAT EMPTOR

From Jason Zweig of the Wall Street Journal:

A New Rule Won’t Make Your Broker an Angel

All brokers and financial advisers have conflicts of interest. New regulations, no matter how well intended, can’t change that.

Next week, the Securities and Exchange Commission is expected to approve a rule that will require brokers to act in the best interest of their customers—rather than their own wallets—when offering investment advice. That’s good, so far as it goes.

It probably won’t go far enough, however. The new rule is also likely to lead many investors to drop their guard, in the misguided belief their brokers now can do no wrong. And it may create a marketing bonanza for brokers and investment advisers…

The most immediate result, I expect, will be to weaponize the marketing pitch that brokers have used for so long: “Trust me.” The corollary now will be: “The U.S. government requires me to act in your best interest.” That new clincher will act like kryptonite on the skepticism or objections that many customers otherwise might have mustered.”

https://www.wsj.com/articles/a-new-rule-wont-make-your-broker-an-angel-11559313036

 

DO YOUR HOMEWORK—A SHORT LESSON IN DUE DILIGENCE

I recently received an email touting the Ampersand Fund. The “headline” was certainly impressive.

07-2019_26.png

Looking a little further, I found it was honestly labeled a Morningstar 5 Star fund.

07-2019_27.png

I also found it had indeed outperformed the S&P for 5-month for 2019 through 5/31/2019.

07-2019_28.png

It also significantly outperformed its Morningstar category peers.

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And on an after-tax basis, the difference is magnified.

07-2019_30.png

How about managing risk? The fund’s website says “Objective: An innovative fund solution that aims to achieve returns and volatility comparable to the S&P 500® Total Return Index [that’s the IVV iShare], while seeking to avoid the full impact of downside risk.”

While it’s true that it tracks the volatility of the S&P (standard deviation), on a risk-adjusted basis (Sharpe Ratio), it fails.

And as for “avoiding the full impact of downside risk,” not so much so during the most recent correction.

07-2019_33.png

The moral? Caveat emptor. Do your homework. Don’t make your investments based on Morningstar Star “Stars” or clever ads.

 

MORE “WHO KNEW?”

From USA Today:

States With the Most UFO Sightings: Vermont Leads the Way

UFO reporting levels vary by state. In states with cold winters, sightings increase dramatically during summer months, when more residents are spending their leisure time outdoors. The five states with the most reported UFO sightings per 100,000 people are all northern states, and three of them—Vermont, New Hampshire and Maine—are located in New England. By comparison, UFO reports don’t fluctuate much during the year in southern states, where weather and daylight conditions don’t vary as much.

https://www.usatoday.com/story/news/nation/2019/06/19/states-with-the-most-ufo-sightings/39306977/

 

MORE AMAZING PICTURES

From my friend Peter:

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FOR THE ACADEMIC-MINDED

This is admittedly a bit heavy, but those of you who are familiar with my writing know I’m a passionate fan of behavioral economics, as I believe it explains most of the issues our clients deal with in investing. This is such a good example that I thought an excerpt would be worth sharing.

How Active Management Survives

J.B. Heaton, Ginger L. Pennington; Financial Planning Review

Abstract

There is much evidence that passive equity strategies dominate active equity management, but many investors remain committed to active investing despite its poor relative performance. We explore the behavioral‐economic hypothesis that investors fall prey to the conjunction fallacy, believing good returns are more likely if investment is accompanied by hard work. This is an especially plausible manifestation of the conjunction fallacy, because in most areas of life, hard work leads to greater success than laziness. Our internet survey results show that from 30% to over 60% of higher‐income, over‐30 individuals fall prey to the conjunction fallacy in this context, raising significant questions for law and regulatory policy, including whether actively managed equity products should carry warnings, at least for retail investors. [They don’t mince words.]

Belief in a “just world” is a second psychological factor that may explain the strong subjective appeal of a causal association between financial success and active investment. The “just world hypothesis” asserts that people have a strong desire to view the world as a fair, predictable place—a place in which a person’s merit and her fate are closely intertwined, and where hard work can be expected to yield just rewards (Lerner, 1980). While a large amount of research on the just world hypothesis focuses on harmful societal effects of this belief (that is, victim blaming), other work examines the influence of just world beliefs on decision‐making. Decision makers with a strong belief in the association between hard work and success tend to engage in a range of counter‐productive behaviors, spending excessive amounts of time reaching a decision and distorting perceptions of alternatives in a way that unnecessarily complicates choice (Schrift et al., 2016).

The psychological tendency to believe in a just world influences investors on multiple levels…it encourages investors to overcomplicate what should be a relatively simple decision problem—believing that a more complex investment scheme is necessary to achieve good outcomes. This last point may go far in explaining the efforts to which some leading hedge funds go to give an appearance of hiring the “best and the brightest” even when their investment results are inconsistent with the value of that practice.

The confluence of illusions of control and just world beliefs probably leads investors to accept the idea of a causal link between traders’ work and financial success. When asked to assess the likelihood of achieving financial gains in the stock market, investors employ these feelings as relevant information, judging success to be more likely with an active management. Using very brief surveys, we presented approximately 1,000 adults with a choice judgment task to test for the emergence of the conjunctive fallacy. Similar to Tversky and Kahneman’s heart attack problem,* we expected respondents to find the joint outcome more probable, due to feelings of fluency invoked by the assumed causal relationship…

The most straightforward test of our hypothesis was conducted with a sample of 1,004 individuals, roughly 57% male (n = 572) and 43% female (n = 431). All participants were above the age of 30 (roughly 34% between the ages of 45 and 60 and 41% over age 60), with household incomes in excess of $100,000 (20% of the sample earned over $200,000/year). This is the first question presented to that sample:

ABC Fund invests in common stocks listed on United States stock exchanges. Which is more likely?

(1) ABC Fund will earn a good return this year for its investors.

(2) ABC Fund will earn a good return this year for its investors and ABC Fund employs investment analysts who work hard to identify the best stocks for ABC Fund to invest in.

This question evoked a strong manifestation of the conjunction fallacy, with 62.8% selecting choice (2). This rate is on par with the magnitude of bias found in past studies using this problem structure. By comparison, the “heart attack” problem in Tversky and Kahneman (1983) produced a 58% error rate.*

*The conjunction fallacy emerges even in contexts that are not amenable to that explanation, namely, those in which little to no background information has been provided to participants. In one such demonstration, Tversky and Kahneman asked participants to consider the likelihood of a randomly selected adult male having suffered a heart attack. Participants were instructed to choose which statement was more likely:

(1) This person has had one or more heart attacks.

(2) This person has had one or more heart attacks and is over 55 years of age.

The majority of respondents selected the second option. Despite choice (1) being logically more probable, the addition of age‐related information to choice (2) lends it an air of enhanced plausibility. This is because choice (2) suggests a causal explanation that is consistent with both participants’ prior knowledge and objective reality (that is, the risk of heart attack does, in fact, increase with age). Qualitatively, choice (2) “feels” more likely to participants.

You can read the whole paper here: https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1031

Now go back and look at the graph PERCEPTION vs. REALITY: Causes of Death in the United States for another example of Behavioral Economics.

Hope you enjoyed this issue, and I look forward to “seeing you” again.

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

For Previous Issues:

NewsLetter Vol. 12, No. 3 – May 2019

NewsLetter Vol. 12, No. 2 – March 2019

 

www.Evensky.com

 

 

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

 

The December Rout

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

 

 

 

 

 

In case you haven’t been paying attention, it’s been a bit rocky lately in the market, so I thought this might be a good time for a little recent history.

05-2019-18

05-2019-19

https://www.ft.com/content/73d3dd26-0ce0-11e9-acdc-4d9976f1533b

 

BLOOMBERG, DECEMBER 26, 2018, 10:23 AM

INVESTORS SCRAMBLE TO PULL CASH OUT OF MUTUAL FUNDS

Investors withdrew $56.2 billion from mutual funds during the week that ended Dec. 19, according to data from the Investment Company Institute. The mutual fund market hasn’t experienced a one-week outflow so large since October 2008.

Rout_03

REMEMBER THESE HEADLINES DURING THE “DECEMBER ROUT?”

We’re always preaching patience and long-term investing but we’re also well aware that scary headlines such as the ones above make it difficult to remain in the market when “experts” are warning that the world is coming to an end. So, I decided to track the daily headlines post-“Rout” to see how helpful the daily news might be for investors. I believe you’ll find the almost daily flip-flopping enlightening and it will persuade you to ignore the financial pornography and remain a patient long-term investor. Be sure to note the flip-flop between the red and green boxes, particularly the heavy ones.

Obviously I didn’t know where the market was going when I started this, but I haven’t been surprised that the media coverage followed the classic pattern below.

The moral is, next time you think you should make your investments decisions based on financial pornography and “breaking news,” reread the history below since the beginning of the “December Rout” and think twice before you bail out.

Investment success is based on time IN the market, NOT market timing!

Rout_04.png

Rout_05

Rout_06

Rout_07

Rout_08

Rout_14

Rout_15

Rout_16

Rout_17

Rout_18.png

Rout_19

Rout_20.png

 

FINALLY, AFTER READING THIS I THOUGHT YOU MIGHT ENJOY A BIT OF CREDIBLE OPTIMISM FROM WARREN BUFFETT

Buffett: Stocks are ‘virtually certain’ to rise in years ahead

‘Miraculous’ U.S. economy remains the engine, says Berkshire chief. He’s not worried.

Warren Buffett assured Berkshire Hathaway investors that they’re likely to continue seeing “substantial” investment gains, aided by what he describes as the long-running U.S. economic miracle.

“Our expectation is that investment gains will continue to be substantial—though totally random as to timing—and that these will supply significant funds for business purchases,” Buffett said in his annual letter to Berkshire

Naysayers may make money by pushing “gloomy” forecasts, he said, but “heaven help them if they act on the nonsense they peddle.”

https://www.marketwatch.com/story/buffett-stocks-are-virtually-certain-to-rise-in-years-ahead-2017-02-25

If you made  it this far, I hope you found it useful and this history lesson provides some comfort as we struggle (once again) through volatile markets. Just remember, patience pays and we’re here for you if you’d like to chat further.

Sincerely,

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

www.Evensky.com

 

 

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

NewsLetter Vol. 12, No. 3 – May 2019

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

DEAR READER,

8 WAYS TO SPRING CLEAN YOUR FINANCES

An excellent piece by my friend Robert Powel in USA Today with a link to my partner Josh Mungavin’s free “Family Information Organizer”: https://www.amazon.com/Family-Information-Organizer-Emergency-Disaster-ebook/dp/B07HFG63CQ/

https://www.usatoday.com/story/money/columnist/2019/04/25/financial-planning-key-components-plan/3329845002/ 

 

HOW LONG?

How long might you be around? A life expectancy calculator developed by the Janet and Mark L. Goldenson Center for Actuarial Research at the University of Connecticut.

https://apps.goldensoncenter.uconn.edu/HLEC/

 

NOT SUCH GOOD NEWS

“How much money will you need to retire? If you’re like the majority of Americans, you don’t know the answer.

A Bankrate survey from June 2018 found that 61 percent of Americans don’t know how much they will need to have saved to fund their retirement. Meanwhile, a separate March 2019 survey found that 21 percent of working Americans aren’t saving at all. It’s no surprise then that half of working households are “at risk” of not being able to maintain their standard of living when they retire, according to the National Retirement Risk Index (NRRI) from Boston College’s Center for Retirement Research.”

If you’re in the “don’t know” camp, check with us—that’s what we do.

https://www.bankrate.com/retirement/how-to-save-for-retirement/

 

NO COMMENT

Except you might want to consider the Fiduciary Oath.

Wells Fargo, LPL, Raymond James, Stifel, Oppenheimer, RBC and 73 Other Firms Ordered to Pay Millions to Harmed Investors

The SEC has settled charges against 79 advisory firms that have been ordered to pay more than $125 million to mostly retail clients harmed in the sale of higher-priced mutual fund share classes when lower-priced share classes were available.”

http://financialadvisoriq.com/c/2223483/269053/

 

SUCCOTASH

Barron’s recently published its 2018 “Fund Family Ranking: The Best Active Shops.” I must admit the concept and value of the “Best Shops” leaves me clueless. A fund family may rank highly due to a few of the managers posting outstanding performance while the majority are mediocre or worse. Kind of reminds me of the man who drowned in the lake that only had an “average” depth of four feet or the one who was comfortable with his head in the freezer and his rear in the oven. Investors put their money in individual funds, not families. Succotash may be fine for vegetables, but not investments.

HOW TO CALCULATE THE COST OF COLLEGE: A GUIDE TO FINANCIAL AID TERMS

An excellent guide from NPR for anyone facing the daunting task of funding college expenses.

https://www.npr.org/2019/04/11/709528694/how-to-calculate-the-cost-of-college-a-guide-to-financial-aid-terms?utm_medium=RSS&utm_campaign=news

 

FREE MONEY (MAYBE)

A tip from AARP Magazine

05-2019-01

https://www.usa.gov/unclaimed-money

 

BEWARE!

Of unrealistic guarantees and affinity marketing.

Getty Images Plus

“SEC Charges Texas Radio Host For $19.6 Million Ponzi Scheme”

William Gallagher, the self-dubbed “Money Doctor” and author of “Jesus Christ, Money Master” is principal of a firm that claimed “to be a vehicle of God’s peace and comfort to as many people as possible, helping first with their financial peace of mind.” Gallagher guaranteed investors risk-free returns in the accounts ranging from 5 percent to 8 percent per year, according to the SEC’s complaint.

The Securities and Exchange Commission charged a Texas radio host on Tuesday for allegedly operating a $19.6 million Ponzi scheme that targeted elderly Christian investors.

https://www.wealthmanagement.com/people/sec-charges-texas-radio-host-196-million-ponzi-scheme

 

SPIVA UPDATE

The 2018 full year report is now in and it doesn’t look any better for active managers.

“For the ninth consecutive year, the majority (64.49%) of large-cap funds underperformed the S&P 500. The figures highlight that heightened market volatility does not necessarily result in better relative performance for active investing. Similarly, small-cap equity managers found it more challenging to navigate 2018’s market environment compared with 2017’s rangebound market movements; 68.45% of all small-cap funds lagged the S&P SmallCap 600 over the one-year horizon.”

05-2019-02

05-2019-03

05-2019-04

https://us.spindices.com/documents/spiva/spiva-us-year-end-2018.pdf

 

AND MARKET TIMING DOES NOT HELP—IN FACT, IT COSTS

DALBAR: U.S. Investors Lost Twice As Much As The S&P 500 In 2018

A combination of volatile market conditions and bad timing caused the average U.S. investor to lose twice as much as the S&P 500 in 2018, according to a new study from DALBAR.

The research firm’s latest Quantitative Analysis of Investor Behavior (QAIB) found that investors were actually blown away by market turmoil last year, losing 9.42 percent over the course of 2018, compared with a 4.38 percent retreat by the S&P.

https://www.fa-mag.com/news/u-s–investors-lost-twice-as-much-as-the-s-p-500-in-2018-43995.html

 

GOOD ON YA

As my Aussie friends would say

From Financial Advisor

Grandparents Spending $179 Billion Annually On Grandkids: AARP

While grandparents spend an average of $2,572 annually, many are spending a good deal more on things like tuition assistance and even multi-gen vacations, according to new research from AARP, which found the financial impact that grandparents have on their grandchildren’s lives is immense.

https://www.fa-mag.com/news/grandparents-spending–179-billion-annually-on-grandkids–aarp-44245.html

 

I’M CONFUSED

“Maryland Lawmakers Get Earful On Proposed Broker Fiduciary Rule” 

A recent story in Financial Advisor highlighted the debate over the fiduciary proposals now being debated in a number of states.

“Those both for and against Maryland legislation that would put brokers and insurance agents under a state fiduciary rule testified before state legislators on Wednesday…

Dually registered advisor and FSI member Bruce Robson, a partner with Comprehensive Financial Solutions (CFS) in Salisbury, Md., told Financial Advisor magazine that his smallest clients would likely be hurt by a state fiduciary rule that would force him to use only advisory accounts.

‘It would be harder to serve those clients because of cost,’ he said. ‘Our choices would be to stop working with smaller clients or to increase our fees to an unreasonable level, which would not just be a regulatory red flag, but put us out of compliance.’

Advisory accounts cost investors in the neighborhood of 0.75 percent to 1.0 percent of assets each year, while brokerage accounts can range from 3 percent to 5 percent in a one-time, upfront commission, which is amortized over the life of the account.”

https://www.fa-mag.com/news/industry-groups-fight-back-against-maryland-fiduciary-rule-43791.html?section=3

I am clearly biased but I’m also confused.

  • Why on earth would it be harder to serve small clients or cost them more? If the 3 to 5 percent is a reasonable upfront charge for the brokerage service and there is an issue with doing it as a commission, no problem: charge a 3 to 5 percent fee.
  • I don’t understand the concept of “amortized over the life of the account.” After a commission sale there is NO “life of the account.” After the sale the obligation of the broker to the investor is over. If the broker never speaks to the client again they keep the 3 to 5 percent. In an advisory relationship, the advisor only continues to receive a fee if the client continues to receive advice they consider valuable.

 

TIME IN THE MARKET, NOT TIMING THE MARKET

An interesting chart from DFA

05-2019-05

 

DON’T KNOW WHY

They spent so much money trying to get their kids into a prestigious school. They should have focused on sports training.

05-2019-06

 

HIGH-CLASS GARBAGE COLLECTOR

Our partner Katie is participating in a city program that invites community leaders to actively participate in various city services in order to gain an appreciation for the work of city workers. One of her first experiences was becoming a garbage collector. Her observation: It’s a lot harder than it looks! Coming soon, riding with the police for an evening. Mighty proud of her.

05-2019-07

 

AND THE PRICE IS RIGHT!

05-2019-08

05-2019-09  05-2019-10

05-2019-11  05-2019-12

 

NONSENSE

As much as I respect Fidelity, I can’t help but respond to this comment.

Baby boomers, heavily invested in stocks, are putting retirement savings at risk: study

“If there was a market downturn, they could lose a significant chunk of what they’ve worked so hard to save,” said Meghan Murphy, the vice president of thought leadership at Fidelity.

Roughly half of baby boomers have their 401(k) plans invested in riskier allocations than Fidelity suggests for their age group, Murphy said. (Fidelity recommends having around 54 percent in stocks and the rest in bonds, money market funds or certificates of deposit.)

https://www.msn.com/en-us/money/savingandinvesting/baby-boomers-heavily-invested-in-stocks-are-putting-retirement-savings-at-risk-study/ar-BBV0chD

First, assuming the portfolio is appropriately balanced and rebalanced and the investment is truly long term, they are unlikely to “lose a significant chunk of what they’ve worked so hard to save.”

Second, there is no reason to believe their 401K is their only form of saving.

Third, to advise an allocation based on age is wrong and often dangerous. Consider two families living next door to each other, both the same ages and health. One only has limited savings and their 401K, the other has significant savings, a high probability of a significant inheritance and/or the other spouse has a good pension and/or they spend significantly less than their neighbor, etc., etc. Obviously, age is a not very important factor.

Finally, it seems contradicted by what I believe is much more credible Fidelity advice

Long-term investors: Stick to your plan

If you are saving for retirement or another goal that is years away, the time to consider how much of a loss you can handle isn’t during a correction. Rather, you should consider the appropriate risk level for your portfolio when you are looking at your long-term goals, and thinking clearly about your financial situation and emotional reaction to risk.

If you haven’t created a plan, you should. If you have one, it may be worth checking in to see if your investments are still in line with that plan and if your plan continues to reflect your investment horizon, financial situation, and risk tolerance. If all that is so, you will likely be in a better position to manage the ups and downs of the market. If your mix of investments is off track, consider rebalancing back to a more neutral positioning

Key takeaways

  • Given the inevitability of market pullbacks, it’s important to have an investment plan you can stick with through market ups and downs.

https://www.fidelity.com/viewpoints/investing-ideas/ready-for-stock-market-correction

 

NOT SO GOOD NEWS

Future of Retirement: Many Americans Will Run Out of Money; The Street.com

“The future of retirement is, in a word, bleak. Currently, only 58% of households between the ages of 35 and 64 are predicted to not run short of money in retirement, according to Jack VanDerhei, Research Director of the Employee Benefit Research Institute, and one of 16 experts who spoke at TheStreet’s Retirement, Taxes, and Income Strategies symposium held recently in New York. Or put another way: Roughly four in every 10 households between the ages of 35 and 64 (call it 27 million households) are predicted to run short of money in retirement, according to EBRI’s research.”

https://finance.yahoo.com/m/f0be4a7a-cad8-3e4a-a4ff-0ee98e933bb5/future-of-retirement%3A-many.html

 

MORE KATIE

Receiving her second consecutive Golden Apron Award from the mayor for raising the most funds at Beans and Cornbread, the fundraiser for Hospice of Lubbock.

05-2019-13

 

PHILOSOPHERS OF THE TWENTIETH CENTURY

From my friend Alex

  • When a man opens a car door for his wife, it’s either a new car or a new wife. ~ Prince Philip
  • Having more money doesn’t make you happier. I have $50 million, but I’m just as happy as when I had $48 million. ~ Arnold Schwarzenegger
  • If life were fair, Elvis would still be alive today and all the impersonators would be dead. ~ Johnny Carson
  • The first piece of luggage on the carousel never belongs to anyone. ~ George Roberts
  • As I hurtled through space, one thought kept crossing my mind—every part of this rocket was supplied by the lowest bidder. ~ John Glenn
  • America is the only country where a significant proportion of the population believes that professional wrestling is real, but the moon landing was faked. ~ David Letterman
  • I’m not a paranoid, deranged millionaire. Actually, I’m a billionaire. ~ Howard Hughes
  • After a game of chess, the king and the pawn go into the same box. ~ Old Italian proverb

 

 

MENSA WINNERS

From David

The Washington Post’s Mensa Invitational once again invited readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition.

Here are a few of the winners…..

  • Intaxication: Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.
  • Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time.
  • Reintarnation: Coming back to life as a hillbilly.
  • Giraffiti: Vandalism spray-painted very, very high.
  • Sarchasm: The gulf between the author of sarcastic wit and the person who doesn’t get it.
  • Inoculatte: To take coffee intravenously when you are running late.
  • Karmageddon: It’s like, when everybody is sending off all these really bad vibes, right? And then, like, the Earth explodes and it’s like, a serious bummer.
  • Decafalon (n): The grueling event of getting through the day consuming only things that are good for you.
  • Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly.
  • Arachnoleptic Fit (n.): The frantic dance performed just after you’ve accidentally walked through a spider web.

 

I THINK I SEE THE PROBLEM

As much as I loved growing up in New Orleans, it’s a bit depressing to see my home state ranked as the “Dumbest State for Financial Literacy: 2019.

05-2019-14

https://www.thinkadvisor.com/2019/04/09/10-dumbest-states-for-financial-literacy-2019/

 

BEST TIME TO BUY FLIGHTS

From Lifehacker

05-2019-15

When to Buy Winter Flights

If you can avoid Christmas week and ski destinations, most winter destinations offer good value for the money.

  • The average best time to buy is 94 days from travel (just over three months). The prime booking window is 74 to 116 days (about 2.5 months to nearly four months).

When to Buy Spring Flights

Plan ahead for spring flights. There are no major travel holidays in the spring, but both families and college students enjoy spring break for much of March and April. Take advantage of lower midweek prices to help keep costs down.

  • The average best time to buy is 84 days from travel, or nearly three months. The prime booking window is 47 to 119 days (about 1.5 months to just under four months)

When to Buy Summer Flights

Americans travel a ton in the summer, and the peak summer dates of June 15 – August 15 are when the bulk of travel happens. You can find the best deals the closer you get to the end of the season (late August and September will give you the best odds to score low airfares).

  • The average best time to buy is 99 days out from travel. The prime booking window is 21 to 150 days. Flying the second half of August on into September is the sweet spot for these deals.

When to Buy Fall Flights

Overall, fall offers great value for budget travelers. Fall is shoulder season for a lot of destinations, and people simply do not travel as much. Of course, the one exception to this rule is Thanksgiving week. Traveling during Thanksgiving? Better buy on the early side.

  • The average best time to buy is 69 days from travel. The prime booking window is 20 to 109 days (about three weeks to 3.5 months)

https://lifehacker.com/the-best-time-to-buy-flights-in-2019-based-on-917-mill-1833514909

 

CHOOSING A FINANCIAL PROFESSIONAL

Some good advice from the Texas State Securities Board:

05-2019-16

05-2019-17

https://www.ssb.texas.gov/sites/default/files/2019_CORE4_Choosing_A_Financial_Professional.pdf

 

FINALLY

Keep your eye out for my “special report” on the December Rout, coming soon.

THE DECEMBER ROUT

In case you haven’t been paying attention, it’s been a bit rocky lately in the market, so I thought this might be a good time for a little recent history.

05-2019-1805-2019-19.png

https://www.ft.com/content/73d3dd26-0ce0-11e9-acdc-4d9976f1533b

 

Hope you enjoyed this issue, and I look forward to “seeing you” again.

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

For Previous Issues:

Vol. 12, No. 2 – March 2019

Vol. 12, No. 1 – January 2019

www.Evensky.com

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

 

 

 

Harold Evensky’s NewsLetter Vol. 12, No. 2 – March 2019

Harold Evensky CFP® , AIF®
Chairman

Dear Reader:

SPIVA UPDATE

S&P 500 SPIVA Institutional Scorecard

“This report adds institutional accounts to the mutual funds analyzed in the U.S. SPIVA scorecards. Underperformance among institutional accounts was not meaningfully different from those reported for retail funds.

“For active equity institutional managers, the one-year performance figures ending December 2017 were positive. Managers in 10 out of 17 categories outperformed their benchmarks, gross-of-fees. [Editor’s note: There are only two problems with this positive spin: gross-of-fees and short term.]

“However, the majority of equity managers in 15 out of 17 categories underperformed their respective benchmarks over the 10-year horizon, gross-of-fees.”

LINK

 

COOL TIDBITS

The following bits of wisdom are from a talk by my friend Jane Bryant Quinn, one of the very best personal finance writers ever.

  • Clairvoyance Society of London will not meet this week due to unforeseen circumstances.
  • I am an optimist. I’m not someone who smells flowers and looks around for a coffin.
  • Her mom is 102, and five years ago married a young man of 85.
  • Broker: “I’ve looked over your assets and I’m happy to say there is enough there for both of us.”
  • The SEC is enabling fake fiduciaries: “Informed consent” supported by the SEC staff.
  • Lilly Tomlin: No matter how cynical you become, it’s hard to keep up.
  • A man was going to die and asked God if he could bring some of his things with him. God said yes but only one suitcase. He scoured his investments—stocks, bonds, real estate. He decided on gold. When he got to the pearly gates, St. Peter asked, “What’s that?” He opened his suitcase and all the gold bars spilled out. St. Peter exclaimed, “What, you brought pavement?!”

 

FROM MY FRIEND PETER

Don’t blame me for these—blame Peter.

  • England has no kidney bank, but it does have a Liverpool.
  • I tried to catch some fog, but I mist.
  • I changed my iPod’s name to Titanic. It’s syncing now.
  • I stayed up all night to see where the sun went, and then it dawned on me.
  • I’m reading a book about antigravity. I just can’t put it down.
  • I did a theatrical performance about puns. It was a play on words.
  • Why were the Indians here first? They had reservations.
  • I didn’t like my beard at first. Then it grew on me.
  • Broken pencils are pointless.
  • What do you call a dinosaur with an extensive vocabulary? A thesaurus.
  • I dropped out of communism class because of lousy Marx.
  • I got a job at a bakery because I kneaded dough.
  • Velcro: what a rip-off!
  • Don’t worry about old age; it doesn’t last.

 

THE WORST PERFORMING ETFs IN THE PAST MONTH

As reported by Wealth Management magazine

Past month? You’ve got to be kidding. That’s noise, not news. This is a story I would classify as financial pornography.

LINK

 

2018: A YEAR TO FORGET FOR ACTIVE INVESTORS

Excerpts from a Morningstar research report, as seen in Financial Advisor

“Proponents of active management may want to forget what happened in 2018. In fact, if they’re large-cap investors, they may want to forget the entire past decade.

“Only 38 percent of active U.S. stock funds survived and outperformed their average peer passive fund last year, which was down from 46 percent in 2017, Morningstar said in its year-end ‘Active/Passive Barometer’ report….

“While that was the year-to-year picture, the long-term view of active vs. passive fund performance wasn’t any better, according to the Chicago-based research firm. Only 24 percent of all active funds beat their passive fund rivals over the 10-year period ending December 31….

“The data is based on the performance of 4,600 U.S. funds that account for about $12.8 trillion in assets, or about 69 percent of the U.S. fund market, Morningstar said.”

LINK

 

DAN EGAN

I don’t know Dan, but I did enjoy his tweet: “How come we have Smart Beta and not Lucky Alpha?”

 

DID YOU KNOW?

These come courtesy of my special friend Patti.

  • Humans are born with two fears: falling and loud noises. Every other fear is learned.
  • You once held the world record when you were born, for being “the youngest person on the planet.” Think I’ll add it to my resume.
  • An octopus actually has six arms and two legs, not eight legs.
  • There are exactly 46,783,665,034,756,288,456,012,645 moves possible in a game of chess.
  • Elephants can smell water from three miles away.
  • If humans killed each other at the same rate we kill animals, we’d be extinct in 17 days.
  • Without your pinkie finger, your hand would lose 50% of its strength.
  • Giraffes spend about 70% of their day eating. They must be on a cruise.
  • Cows have best friends and get stressed when they are separated.
  • Beer reduces the risk of developing kidney stones by 40%.
  • Dogs are capable of understanding up to 250 words and gestures. The average dog is as intelligent as a two-year-old child. And they pay about as much attention.
  • Tea is the most consumed drink in the world after water. I’m working on wine to give tea a run for its money.
  • Once a tractor company owner was insulted by the owner of Ferrari. Enzo Ferrari’s words were “You may be able to drive a tractor, but you will never be able to handle the Ferrari properly.” Today that tractor company is known as “Lamborghini.”

 

AND IF YOU’RE NOT YET CONVINCED THAT YOU SHOULD AVOID “GURUS”

Barron’s runs an annual forecasting challenge. Last year it had over 4,000 entrants. Here are a few of the results.

What will the DOW industrials return in 2018, including dividends?

Correct answer: Negative

Correctly answered by 11.57%

Which global market will do best in 2018?

Correct answer: U.S. S&P

Correctly answered by 25.03%

Which of these developments is most likely to occur in 2018?

Correct answer: Equity bear market, S&P 500 finishes in the red

Correctly answered by 8.11%

How many times will the Federal Reserve lift short-term rates in 2018?

Correct answer: four or more

Correctly answered by 5.98%

 

WILL ROGERS QUOTES

Suggested by my friend Alex:

  • “Common sense ain’t common.”
  • “Live in such a way that you would not be ashamed to sell your parrot to the town gossip.”
  • “The road to success is dotted with many tempting parking spaces.”
  • “When you find yourself in a hole, quit digging.”
  • “The short memories of American voters is what keeps our politicians in office.”
  • “A fool and his money are soon elected.”
  • “I don’t make jokes. I just watch the government and report the facts.”
  • “The trouble with practical jokes is that very often they get elected.”
  • “Be thankful we’re not getting all of the government we’re paying for.”
  • “Last year we said, ‘Things can’t go on like this,’ and they didn’t—they got worse.”
  • “The only difference between death and taxes is death doesn’t get worse every time Congress meets.”
  • “There are men running governments who shouldn’t be allowed to play with matches.”
  • “The taxpayers are sending congressmen on expensive trips abroad. It might be worth it except they keep coming back.”

I’ll let you decide whom these shoes fit. I can only believe Rogers would be having a ball if he were alive today.

 

AND IF THE MARKETS DON’T SCARE YOU, WHAT DOES?

According to Popular Science…

Heights                               28.2%

Sharks                                 25.4%

Reptiles                              23.6%

Public Speaking            20.0%

Deep lakes & oceans 18.2%

Clowns                                6.7%

LINK

 

READY FOR A QUIZ?

Also from Popular Science:

Sorry, you’ll have to wait for the end for the answers…

 

FOLLOW THE MONEY

From Skip and InvestmentNews

Fiduciary-based—IAA, FPA…………………………$     468,264

NOT Fiduciary-based…………………………………$19,915,902

SIFMA—brokerage firms

ICI       —Mutual funds

NAIFA —Insurance

FSI      —Commission-based advisors

SIFMA, the trade association representing major brokerage firms, spent more money lobbying lawmakers last year than Goldman Sachs, Fidelity InvestmentsVanguard Group, and other top financial services firms.

 

INTERESTING BUT DEPRESSING

Notes from the Journal of Financial Planning:

In “Retirement Income Literacy: A Key to Sustainable Retirement Planning,” Hopkins and Pearce conclude “…those who better understand key retirement income issues are more likely to have a well-developed retirement income in place.”

“Unfortunately, based on a 2017 survey of 1,244 respondents between the ages of 60 and 75 with at least $100,000 of investable assets:

Mean Score for Retirement Income Knowledge Areas: 47%”

“When asked: how knowledgeable would you say you are about retirement income planning, 88% responded they were moderately to extremely knowledgeable. However, of this same group, only 28.6% passed the literacy quiz with a score of 60 percent or higher.

When asked about Concerns, “Running Out of Money” was of the least concern and health care costs and potential cuts to Social Security were the highest.”

From the Center of Financial Services Innovation U.S. Financial Health Pulse Study:

  • “Only 28 percent of Americans are ‘financially healthy.’ Over half (55 percent) were categorized as ‘financially vulnerable.’”

And some less depressing news:

  • ETFs: 2018 was the 25th anniversary of exchange-traded funds. (I had no idea they were that old.)
  • Roth IRA: 2018 was the 20th anniversary
  • Bitcoin: 2018 was the 10th anniversary
  • Dow Jones Industrial Average (DJIA) removed General Electric, a member of the index since 1907, replacing it with Walgreens.
  • In 2018 Amazon and Apple reached a value of $1 trillion, and Fidelity reached $2 trillion in retirement assets.

 

INTERESTING STATS

Also from the Journal of Financial Planning:

$35,676: Average cost of tuition and fees for the 2018–2019 school year at a private college

$21,629: Average cost of tuition and fees for the 2018–2019 school year at a state school for out-of-state students

$9,716: Average cost for state residents at public colleges for the 2018–2019 school year

40: Percentage of parents with 10th graders who have a financial plan in place to reach college savings goal

56: Percentage of parents with 10th graders who have not discussed how much their kids will be expected to contribute to the cost of college

$16,400: Average amount borrowed per year by parents to pay for their children’s college education in 2014, up from $5,200 in 1990

$37,180: Estimated parental debt from federal college loans for the 2017–2018 school year

 

NEWS HEADLINES FROM NPR

That’s tough!

I guess it would have been OK if he had been legally spying.

 

MORE NEW, OLD PRODUCT PITCHES FROM PETER

 

WANT TO RETIRE IN COMFORT? HERE’S WHAT IT COSTS BY STATE PER YEAR:

#50 – Arkansas     $36,378

#37 – Texas          $39,814

#30 – Louisiana    $41,107

#24 – Florida         $42,586

#4   – California    $49,640

#3   – New York    $50,321

#2   – Hawaii         $54,590

#1   – Alaska         $56,879

LINK

 

TECHNOLOGY, ONCE UPON A TIME

LINK

 

I KNOW YOU’VE ALL BEEN WAITING

So here’s the link to our updated paper, “The Efficacy of Publicly-Available Retirement Planning Tools”: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2732927.

 

A THOUGHT TO REMEMBER DURING ROCKY MARKETS

A boat that doesn’t rock doesn’t move

 

INSURANCE INDUSTRY BATTLES BACK AGAINST FIDUCIARY STANDARD

“The three leading insurance and agent associations are working in tandem to support a state ‘standard of care’ proposal for agents that rejects fiduciary responsibility for agents and advisors. At stake, they say: middle-class investors.”

Of course, why on earth would middle-class investors deserve to be provided a fiduciary relationship?

LINK

 

BARRON’S RANKED ADVISOR DIRECTORY

Barron’s publishes this ranking four times a year that it says is based on “…a deeply researched, quantitate approach.” Assuming I counted correctly, I found that the following large commission-based brokerage firms represented about 58% of the total.

Morgan Stanley –     23%

Merrill Lynch –           21%

UBS –                                  6%

Wells Fargo –                  4%

J.P. Morgan –                   4%

Fee-only fiduciary firms were just a small fraction of the listings. Go figure.

Of course, with the ranking Barron’s notes: “The list of highlighted advisors below is a special advertising section.” That might have something to do with it.

MORE FROM BARRON’S

Maybe their crystal ball isn’t so great, but I’ll give them credit for honesty. In an article reviewing the publication’s 2018 stock picks titled “A Mixed Year for Barron’s Stock Picks,” they wrote: “Shares of the 71 companies we wrote about bullishly fell 10.5% on average, versus 9.5% for their benchmarks. Add back dividends and we were down 9.4% versus a drop of 8.5% for the benchmarks. The S&P lost 7.4% over the same period.”

GOOD TO KNOW

ANOTHER GOOD WEEK

Deena and I were honored with the Dr. A. William “Bill” Gustafson Distinguished Leadership Award, “…recognizing distinguished leadership that is consistent with the ideals of the Texas Tech Department of Personal Financial Planning and promotes the financial planning profession with commitments to developing leaders of the highest caliber and character.”

The award was presented by our department chair, Vickie, and our partners Katie and John (John won the Distinguished Alumni Award last year).

 

 

SHOW YOUR SWAGGER

We are happy to introduce a new website, Advisor on My Side (https://www.advisoronmyside.org/), where investors can get reliable information from ethical financial advisors who truly have their clients’ interests at heart. Here’s an excerpt:

It’s a fact. Objective and competent financial advice can be life-changing. Yet with confusing information from the industry and regulators, it can be tough to figure out who’s who. To know which advisors are on your side. Advisors who are actual fiduciaries.

All advisors talk the talk. Only some can walk the walk.

Advisor On My Side brings together the best tips from investors, fiduciary advisors, and experts.

The mission: to help investors learn what they need to know to protect themselves.

Be sure to look at the short video to understand what we mean by “swagger.”

 

THE ANSWERS

 

FINAL FOOD FOR THOUGHT

Also from my friend Alex.

Hope you enjoyed this issue, and I look forward to “seeing you” again.

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

For Previous Issues:

Vol. 12, No. 1 – January 2019

Vol. 11, No. 7 – December 2018

www.Evensky.com

Harold Evensky’s NewsLetter Vol. 12, No. 1 – January 2019

Harold Evensky CFP® , AIF®
Chairman

Dear Reader:

FOREWARNED IS FOREARMED

From an interview at the end of 2018 with Greg Davis, Vanguard’s Chief Investment Officer:

“The bull market in stocks that began in many parts of the world in early 2009 is nearly a decade old. Should investors adjust their expectations?

“Based on our fair-valuation metrics, we expect globally diversified stock portfolios to deliver annualized returns in the 4.5%–6.5% range over the next ten years. That’s roughly half of their long-term historical average return. And it’s roughly a third of their annualized gains since the depths of the financial crisis a decade ago. So, yes, some investors probably are expecting too much from stocks.

“Below our headline expectations for global stock portfolios, which assume dollar-denominated investments, are somewhat higher forecasts for non-U.S. markets and somewhat lower forecasts for the U.S. market. We’re a little more optimistic about stocks outside the U.S. because their valuations are lower.”

And one more observation from an interview with WealthManagement.com:

WM: Do active managers have an edge in volatile markets?

GD: That’s always been the claim, but we haven’t seen the data really bear that out.

His observations are consistent with our expectations.

Vanguard: Our CIO talks expectations, interest rates, and blockchain

WealthManagement.com: Inside ETFs Q&A: Vanguard’s Gregory Davis

A HEAD-SCRATCHER

SEC’s latest on fiduciary: Advisers can customize individual client agreements

Disclosure and informed consent can limit services, allow third party pay

“When Securities and Exchange Commission chairman Jay Clayton asserted at a congressional hearing last week that investment advisers can ‘contract around’ their obligation to act in a client’s best interests, it caused some head scratching in the adviser community.

In response to being pressed by Sen. Elizabeth Warren, D-Mass., about the SEC’s investment advice reform proposal, Mr. Clayton said: ‘Advisers are allowed to contract around this standard; it’s not well known. This is something we want people to understand.’”

InvestmentNews: SEC’s latest on fiduciary: Advisers can customize individual client agreements

A head-scratcher indeed. All the more reason to be sure your financial advisor signs the OATH. See below in the “FOR SHAME” note for a copy.

HEAD-SCRATCHER FOLLOW-UP

What makes this proposal even more incredible are the results of a RAND study commissioned by the SEC Office of the Investor Advocate and published in its 2018 Report on Activities. These were some of their observations:

To understand investor understanding of the term “best interest,” we asked respondents “What do you think it means if a financial professional is required to act in your “best interest?” We offered respondents eight attributes to which they could respond yes, no, or I don’t know. Panel 3 of the infographic on the previous page summarizes three of the responses we want to highlight for the individuals that reported currently using a financial professional for investment advice. Current advice users overwhelmingly believed (86 percent) that a professional required to act in their best interest monitors their accounts on an ongoing basis. This is somewhat of a concern because the best interest standard, as proposed, will apply to broker-dealers who are not required to provide this service as part of their typical offerings. The next two questions relate to cost and conflicts of interest. Seventy-three percent of current advice users believed that a professional acting in their best interest “will help me to choose the lowest cost products, all else being equal.” Sixty-one percent indicated that the professional would “avoid taking higher compensation for selling me a product when a similar but less costly product is available.”

From Panel 3:

That is, most didn’t have a clue.

Asked if financial professionals acting in an investor’s “best interest” would be required to:

  • Avoid taking higher compensation for selling one product when a similar but less costly one is available one is available …………………………………………61% said yes
  • Help them choose the lowest cost products, all else being equal ……73% said yes
  • Monitor their accounts on an ongoing basis …………………………….86% said yes

THESE ARE CURRENTLY NOT REQUIREMENTS FOR THOSE REGISTERED AS BROKERS

 

WHO REMEMBERS?

From my friend Peter

          

FROM MY LAST ISSUE

My friend the math professor says don’t try and use this PIN.

“You have an integral divided by a square root, where it appears the square root is not part of the integrand. I don’t see how this can provide a PIN; do you? Even if it were meant to be part of the integrand, there is still something wrong, because x^2-3x+2=(x-2)(x-1).”

PERSPECTIVE

Some thoughtful charts prepared by my associate Michael

YES!

I checked with my little brother (the Economics Professor at Syracuse) as he has the same porous memory as I do and we agreed we must be brilliant.

Open News: Neuroscientists Say Your Forgetfulness Is A Sign of Extraordinary Intelligence

WOW!

“The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years”

“‘We are becoming the dominant energy power in the world,’ said Michael Lynch, president of Strategic Energy & Economic Research. ‘But, because the change is gradual over time, I don’t think it’s going to cause a huge revolution, but you do have to think that OPEC is going to have to take that into account when they think about cutting.’

“The shale revolution has transformed oil wildcatters into billionaires and the U.S. into the world’s largest petroleum producer, surpassing Russia and Saudi Arabia. The power of OPEC has been diminished, undercutting one of the major geopolitical forces of the last half century.”

Bloomberg: The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years

I KNOW YOU WANT TO KNOW

Top dog names for 2018 from NPR

FEMALES                               MALES

#1       Bella                                       Max

#2       Lucy                                       Charlie

#3       Luna                                       Cooper

#4       Daisy                                     Buddy

#5       Lola                                        Jack

NPR: Origins Of The Top Dog Names Of 2018: Pop Culture, Brunch, And Baby Names

 

MORE NOISE NOT NEWS

New York Times, Friday, December 7, 4:38 a.m.

“The arrest over the weekend of a top executive at Huawei, the Chinese telecommunications giant, has complicated President Trump’s trade talks with Beijing and drawn sharp protests from the Chinese government….

Side effects: The news contributed to whiplash for global markets on Thursday, but things seem more stable today.” [Emphasis mine]

thestreet, Friday, December 7

  BREAKING NEWS  11:08 am
  Dow’s Losses Accelerate, Blue-Chip Index Tumbles More Than 300 Points

Dow Falls 500 Points as Earlier Rally Fizzles     CLOSING – DOW off 558.72

 

WHO KNEW?

From Snaps

GOOD ADVICE FROM THE NEW YORK TIMES

FOR SHAME

From WealthManagement.com

“Today, you can invest in the Vanguard 500 Index Fund for as low as 4 basis points. But some legacy index funds—which track the exact same index—charge much, much higher fees than that, and investment gurus say they are simply unjustifiable.”

“The Rydex S&P 500 Index Fund—often considered the poster child of high-fee index funds—charges a net expense ratio of 2.33 percent. That includes a management fee of 75 basis points and 1 percent 12b-1 fee, a reward to the advisor for selling the fund. But there are more than a dozen similar, plain vanilla funds—also tracking the S&P—with net expense ratios over 1 percent. Federated Investors, State Farm and Invesco are just a few providers.”

Note: Data as of Oct. 31; these are widely held, market-cap-weighted, long only funds that track the S&P 500. It does not include funds that go short or use leverage.

It seems Barron’s reached the same conclusion in “Getting Fleeced on Fund Fees.”

“Investors might think index funds are a great way to capture market returns. Most index funds charge practically nothing: One of the largest, Vanguard Total Stock, charges just 0.04% a year; the average stock index fund’s expense ratio is down to 0.09%, less than a dime for every $100 invested. That has dropped from 0.27% in 2000, according to the Investment Company Institute, the fund industry’s lobbying group.

“Yet the industry’s method of calculating fees, on an asset-weighted basis, obscures a surprising fact: Hundreds of billions of dollars are sitting in share classes of index mutual funds that charge well above 1% in annual fees. Many of these funds do nothing more than track broad market benchmarks like the S&P 500. Yet their fees are on par with actively managed funds and, in some cases, even exceed them, topping 1.6% a year.”

“Another pool of high-fee funds sits in variable annuities, insurance contracts that hold stocks, bonds, or other financial assets in “sub-accounts.” Industry-wide, these sub-accounts hold more than $106 billion in index funds with expense ratios averaging 0.59%, according to data from Morningstar. That’s partly because these funds don’t have to compete against low-cost versions that investors may buy outside the insurance wrapper, says Todd Cipperman, founder of Cipperman Compliance Services, a financial consulting firm based in Wayne, Pa.”

“Barron’s found hundreds of funds held in variable annuities with sharply higher fees than what investors would pay for identical funds outside annuity wrappers. The Rydex Variable Nasdaq 100 fund is a popular choice, showing up in sub-accounts issued by carriers such as Nationwide, Principal, and Prudential, according to Morningstar. The fund has an expense ratio of 1.66%, well above the 0.2% for Invesco QQQ Trust (QQQ), an ETF with the identical portfolio. A spokesman for Nationwide said the firm ‘does not set nor establish the expense ratios of third-party funds.’ Principal declined to comment on the expense ratio of the Nasdaq fund. Prudential did not reply to requests for comment.”

WealthManagement.com: The Persistence of High-Fee Index Funds

Barron’s: Investors Might Be Paying Too Much for These Index Funds

Wonder why I keep pitching the Committee for the Fiduciary Standard’s Fiduciary Oath?

WHOOPS

Seems like I included a bum link in my last NewsLetter; so I’m trying again:

FINANCIAL PLANNING – A GREAT PROFESSION

If you have a few minutes to kill, this is a link to an interview I did at the Financial Planning Annual Convention: CLICK HERE

10 GOLF COURSES YOU MUST VISIT BEFORE YOU DIE

For our golfer friends and clients

  1. Cabot Cliffs, Cape Breton, Canada
  2. Emirates Golf Club, Dubai
  3. Highland Course At Primland Resort, Meadows of Dan, Va.
  4. Cape Kidnappers Golf Course, Hawke’s Bay, New Zealand

Here’s an example of these courses:

  1. Leopard Creek Country Club, Mpumalanga, South Africa
  2. Yas Links, Abu Dhabi, United Arab Emirates
  3. Sandy Lane, St. James, Barbados
  4. Pebble Beach Golf Links, Pebble Beach, Calif.
  5. El Camaleón Riviera Maya Golf Club, Playa del Carmen, Mexico
  6. The Blackstone Course at Mission Hills, Hainan, China

FA: 10 Golf Courses You Must Visit Before You Die

MERRILL LYNCH LOWERS MAX ADVISORY FEE TO 2%

Hot off the press from FinancialAdvisor IQ

“Wirehouse Merrill Lynch is dropping the top fees charged to its advisory platform clients for second time in two years…

“The maximum fees such clients will pay effective Jan. 1 will be 2%, according to FundFire. The current fee structure, effective since February 2017, sets the maximum at 2.2% for accounts with less than $5 million and 2% for those with more than $5 million, FundFire writes, citing Merrill Lynch’s March ADV.”

No comment.

FinancialAdvisorIQ: Merrill Lynch Lowers Max Advisory Fee to 2%

 

MORE TOPs – THE NATION’S TOP 10 ‘PARTY SCHOOL’ COLLEGES

I’m sure parents of students of these schools are very pleased.

  1. University of Rhode Island, South Kingstown, R.I., Enrollment: 15,092,
  2. Colgate University, Hamilton, N.Y., Enrollment: 2,873
  3. University of Wisconsin-Madison, Madison, Wisc., Enrollment: 32,196
  4. University of California – Santa Barbara, Santa Barbara, Calif., Enrollment: 22,186
  5. Lehigh University, Bethlehem, Pa., Enrollment: 5,075
  6. Bucknell University, Lewisburg, Pa., Enrollment: 3,611
  7. Syracuse University, Syracuse, N.Y., Enrollment: 15,252
  8. Tulane University, New Orleans, Enrollment: 6,571
  9. West Virginia University, Morgantown, Va., Enrollment: 22,504
  10. University of Delaware, Newark, Del., Enrollment: 18,144

 FA: The Nation’s Top 10 ‘Party School’ Colleges

SURE HOPE HE’S RIGHT

“Byron R. Wien, vice chairman in the Private Wealth Solutions group at Blackstone, issued his list of ‘Ten Surprises for 2019’ on Thursday, and it paints a rosier picture than some investors might expect, considering recent market volatility and economic signals.

“This is the 34th year Byron has released his list, which contains his views on economic, financial and political events for the coming year. Byron defines a ‘surprise’ as an event that the average investor would give a one-in-three chance of happening, but which he believes has a better than 50-50 chance of becoming a reality.”

Wien’s surprises for 2019, in his exact words, are as follows:

“Partly because of no further rate increases by the Federal Reserve and more attractive valuations as a result of the market decline at the end of 2018, the S&P 500 gains 15 percent for the year. Rallies and corrections occur but improved earnings enable equities to move higher in a reasonably benign interest-rate environment.”

FA: Byron Wien ‘Surprises’ With Rosy Predictions for 2019

 

NOT SO GOOD NEWS FOR ACTIVE MANAGERS

From S&P Dow Jones Indices:

ThinkTank: Does Past Performance Matter? The Persistence Scorecard

AND EVEN MORE BAD NEWS

From the recent S&P 500 SPIVA® Institutional Scorecard:

Similar to findings in previous scorecards, more mutual fund managers underperformed than their institutional counterparts for all equity categories on a net-of-fees basis. · For example, over the past 10 years in the large-cap equity space, 89.51% of mutual fund managers and 58.78% of institutional accounts underperformed the S&P 500® on a net-of-fees basis. … · Similarly, during the same period in the mid-cap space, 96.48% (85.37%) of mutual funds and 78.57% (62.98%) of institutional accounts underperformed the S&P MidCap 400® on a net (gross) basis. · Small-cap equity remains a challenging space for active managers. Over 80% of mutual funds underperformed the S&P SmallCap 600® (net- and gross-of-fees), while 81.61% (61.45%) of institutional accounts underperformed on a net (gross) basis in the past 10 years. The findings in the small-cap space help to dispel the myth that small-cap equity is an inefficient asset class that is best accessed via active management.

S&P Dow Jones Indicies: SPIVA® Institutional Scorecard: How Much Do Fees Affect the Active Versus Passive Debate?

QUIZ FOR MY VERY BRIGHT FRIENDS WHO ARE ALSO FORGETFUL

From my bright friend, Leon. There are nine questions.

These are not trick questions. They are straight questions with straight answers.

  • Name the one sport in which neither the spectators nor the participants know the score or the leader until the contest ends.
  • What famous North American landmark is constantly moving backward?
  • Of all vegetables, only two can live to produce on their own for several growing seasons. All other vegetables must be replanted every year. What are the only two perennial vegetables?
  • What fruit has its seeds on the outside?
  • In many liquor stores, you can buy pear brandy, with a real pear inside the bottle. The pear is whole and ripe, and the bottle is genuine; it hasn’t been cut in any way. How did the pear get inside the bottle?
  • Only three words in standard English begin with the letters “dw” and they are all common words. Name two of them.
  • There are 14 punctuation marks in English grammar. Can you name at least half of them?
  • Name the only vegetable or fruit that is never sold frozen, canned, processed, cooked, or in any other form except fresh.
  • Name 6 or more things that you can wear on your feet beginning with the letter ‘S.’Answers to Quiz:
  • The one sport in which neither the spectators nor the participants know the score or the leader until the contest ends: boxing.
  • North American landmark constantly moving backward: Niagara Falls. The rim is worn down about two and a half feet each year because of the millions of gallons of water that rush over it every minute.
  • Only two vegetables can live to produce on their own for several growing seasons: asparagus and rhubarb.
  • The fruit with its seeds on the outside: strawberry.
  • How did the pear get inside the brandy bottle? It grew inside the bottle. The bottles are placed over pear buds when they are small, and are wired in place on the tree. The bottle is left in place for the entire growing season. When the pears are ripe, they are snipped off at the stems.
  • Three English words beginning with “dw”: dwarf, dwell, and dwindle.
  • Fourteen punctuation marks in English grammar: period, comma, colon, semicolon, dash, hyphen, apostrophe, question mark, exclamation point, quotation mark, brackets, parenthesis, braces, and ellipses.
  • The only vegetable or fruit never sold frozen, canned, processed, cooked, or in any other form but fresh: Lettuce.
  • Six or more things you can wear on your feet beginning with “s”: shoes, socks, sandals, sneakers, slippers, skis, skates, snowshoes, stockings, stilts. Don’t send it back to me. I’ve already failed it once.

MARKET INSIGHTS

From JP Morgan’s most excellent Market Insights:

TELL ME IT’S NOT TRUE!

NPR: Woodstock Will Return This Summer, For Its 50th Anniversary

UNBELIEVABLE!

Ancient termite megapolis as large as Britian found in Brazil

CNN travel: Ancient termite megapolis as large as Britain found in Brazil

 

OH MY

Many Americans Think Proof Of Bigfoot Is More Likely Than A Comfortable Retirement

“It’s no wonder one in three Americans believe they have a better chance of learning the mythical creature Chewbacca is real than retiring comfortably, given their current dearth of savings and retirement planning. Many simply aren’t saving anything and have no plan to start in 2019. Fewer than half (47%) of working Americans in their 40s and 50s with household incomes from $40,000 to $99,999 said retirement was one of their top three savings priorities for 2019, according to a new AARP-Ad Council survey. Just 21 percent said saving for retirement is their top priority for the new year.”

FA: Many Americans Think Proof Of Bigfoot Is More Likely Than A Comfortable Retirement

 

NOT SO UNIQUE

A little perspective from Barron’s (12/28/2018):

Barron’s: Sizing Up the Market’s Recent Volatility

AMAZING PICTURES

Winners of the Epson International Pano Award contest from my friend Leon. Lots more at:

DailyMail.com: Lightning striking the Grand Canyon and a magical dive into an abyss: The stunning winners of the panoramic photography awards revealed.

Zoom the page up for more dramatic views:

 

 

GETTING OLDER

A distraught senior citizen phoned her doctor’s office. “Is it true,” she wanted to know, “that the medication you prescribed has to be taken for the rest of my life?”

“Yes, I’m afraid so,” the doctor told her. There was a moment of silence before the senior lady replied, “I’m wondering, then, just how serious is my condition because this prescription is marked ‘NO REFILLS.’”

~~~~~~~~~~

An older gentleman was on the operating table awaiting surgery and he insisted that his son, a renowned surgeon, perform the operation. As he was about to get the anesthesia, he asked to speak to his son.

 

“Yes, Dad, what is it?”

 

“Don’t be nervous, son; do your best, and just remember, if it doesn’t go well, if something happens to me, your mother is going to come and live with you and your wife….”

 

(I LOVE IT!)

~~~~~~~~~~

 

The older we get, the fewer things seem worth waiting in line for.

 

~~~~~~~~~~

 

When you are dissatisfied and would like to go back to youth, think of Algebra.

~~~~~~~~~~

Now, if you feel this doesn’t apply to you, stick around awhile … it will!

SPEAKING OF OLDER

I graduated from high school in 1960. Here are some sobering facts from that year:

Average income………………….….$5,620/year

Senator’s income…………………….$22,500/year

New home…………………………….$12,700

Gas……………………………………..31 cents/gallon

Movie ticket…………………………….51 cents

Minimum wage………………………..$1.00

DOW……………………………………613

Best Picture……………………………”The Apartment”

Best Actor………………………………Burt Lancaster, “Elmer Gantry”

Best Actress……………………………Elizabeth Taylor, “Butterfield 8”

 

Top Songs

“It’s Now or Never,” Elvis Presley

“I’m Sorry,” Brenda Lee

“Running Bear,” Johnny Preston

“Teen Angel,” Mark Dinning

“The Twist,” Chubby Checker

“Alley Oop,” Hollywood Argyles

 

Those were the good old days!

 

LAST MINUTE ADDITION

Jack Bogle, founder of Vanguard and a beautiful person just passed away. Below is a wonderful tribute by Ron Lieber in the New York Times.

The New York Times: The Things John Bogle Taught Us: Humility, Ethics and Simplicity

 

Hope you enjoyed this issue, and I look forward to “seeing you” again.

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

NewsLetter Vol. 11, No. 7 – December 2018

Harold Evensky CFP® , AIF®
Chairman

Dear Reader:

 

NOT LOOKIN’ GOOD

For active managers. From the S&P DOW Jones SPIVA Scorecard:

Overall performance of active equity funds relative to their respective benchmarks over the medium term also improved, although the majority still underperformed their benchmarks. Over the five-year period, 76.49% of large-cap managers, 81.74% of mid-cap managers, and 92.90% of small-cap managers lagged their respective benchmarks. Similarly, over the 15-year investment horizon, 92.43% of large-cap managers, 95.13% of mid-cap managers, and 97.70% of small-cap managers failed to outperform on a relative basis.

https://us.spindices.com/documents/spiva/spiva-us-mid-year-2018.pdf

 

WHERE’S THE BENJAMINS ($100 BILLS)?

In billions of notes, how much cash was in circulation in 2017?

$1        12.1

$2        1.2

$5        3.0

$10      2.0

$20      9.1

$50      1.7

$100    12.5

$100 bills as a percentage of total cash: 78%

There are 36 $100 bills in circulation for every man, woman, and child in the United States.

Where are the $100 bills?

  • $80 billion in domestic depository institutions
  • $453 billion with domestic businesses and individuals
  • $1.07 trillion held abroad!

www.wealthmanagement.com

 

GREAT MINDS

From Deena’s office:

Great Minds Discuss Ideas

Average Minds Discuss Events

Small Minds Discuss People

 

SOUND ADVICE

Some basic but wise advice from The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk, by Taylor Larimore, via my friend Alex:

  1. A 100% stock portfolio can be dangerous.
  2. Believing a broker is your friend can be dangerous.
  3. Avoid the lure of individual stocks.
  4. Past performance does not forecast future performance.
  5. Investment newsletters are a waste of money, and market-timing doesn’t work.
  6. Past performance does not forecast future performance (some advice requires repeating).
  7. Avoid expensive stockbrokers and their hidden fees.
  8. Buying high and selling low is a losing strategy.

The Boglehead Philosophy

  1. Develop a workable plan.
  2. Invest early and often.
  3. Never bear too much or too little risk.
  4. Diversify.
  5. Never try to time the market.
  6. Use index funds when possible.
  7. Keep costs low.
  8. Minimize taxes.
  9. Invest with simplicity.
  10. Stay the course.

https://www.amazon.com/gp/product/1119487331

 

THERE’S A SECRET CODE ON YOUR MILK. HERE’S WHAT IT MEANS.

Most dairy farmers don’t bottle and sell directly to grocery stores. They work with regional dairy plants, which act as middlemen. You can see what dairy bottled your milk. Just grab a gallon and look at the code!

Here’s what to do:

  • Find the secret code—usually located near the expiration date. It looks like: 01-12345 or 01-02.
  • Pull up Where Is My Milk From (http://whereismymilkfrom.com/#) and type in the code to see where your milk was bottled.

http://www.msn.com/en-us/foodanddrink/tipsandtricks/theres-a-secret-code-on-your-milk-heres-what-it-means/ar-BBOQWSS?li=BBnb7Kz&ocid=iehp

 

BOZO JIM CRAMER BLAMES MOMENTUM ETF FOR HIS RECENT PERFORMANCE WOES

The title above is not mine; it is the heading of an article by Evan Simonoff, my friend and the editor of Financial Advisor magazine. It seems Cramer’s poor performance isn’t his fault but everyone else’s (although readers of my Newsletter will know I don’t necessarily disagree with Evan’s characterization of Mr. Cramer). From the article:

One doesn’t have to be Isaac Newton to realize that when a security goes vertical like some tech and credit card stocks have for almost this entire, extended bull market, they can also go the other way. Momentum stocks have been experiencing some tough times over the last five weeks. After 10 years of sensational performance, many think they were due for a major correction.

But Jim Cramer of Mad Money fame penned a piece Thursday in which he seems convinced that some of his favorite stocks, notably Amazon, Visa and Mastercard, are trading like “Mexican jumping beans” all because of evil “voyeuristic ETFs” that are “completely hidden.”

So which ETF is the most serious culprit ruining Cramer’s life? It is iShares Edge MSCI USA Momentum Factor ETF (MTUM). Incidentally, I suspect Cramer’s mood is not in a better state this week with the Dow down more than 600 points.

Apparently, MTUM is one of several “totally abusive ETFs out there that really do unlevel the playing field and make a mockery of the whole business,” he wrote.

So who is he calling morons and doofuses? It’s the “moron managers flitting all over the place, the kind Warren Buffett calls out as expensive doofuses,” who are constantly engaging in the risk-on, risk-off trades that always appear to poop on Cramer’s parade. And their current instrument is MTUM.

MTUM may be one of many vehicles raining on the parade, but it’s likely there are many other far more powerful algorithmic strategies making momentum investors miserable. In recent weeks, wizards like AQR’s Cliff Asness have sent apologies to investors talking about their underwhelming investment performance in recent weeks [see “Hope Springs Eternal” later in the Newsletter].

https://www.fa-mag.com/news/bozo-jim-cramer-blames-etfs-for-his-performance-woes-41868.html

 

MORE BAD NEWS

From CBS News:

Tough Retirement Realities for Baby Boomers

The vast majority of older working Americans don’t have sufficient savings to retire full-time at age 65 with their pre-retirement standard of living. That’s one of the sobering conclusions from the recent Sightlines report issued by the Stanford Center on Longevity (SCL).

As a result, the report noted, workers approaching retirement will either need to work beyond age 65, reduce their standard of living, or do some combination of the two. This should cause some soul-searching among older workers, their families, and their employers…According to the SCL report, almost one-third (30 percent) of them have saved nothing toward retirement.

https://www.cbsnews.com/news/baby-boomers-tough-retirement-realities/

 

STRANGE FACTS ABOUT THE USA

From my friend Leon:

  • More people live in New York City than in 40 of the 50 states.
  • The word “Pennsylvania” is misspelled on the Liberty Bell.
  • There is enough water in Lake Superior to cover all of North and South America in one foot of water.
  • In 1872, Russia sold Alaska to the United States for about 2 cents per acre [about $25 at 5%].
  • It would take you more than 400 years to spend a night in all of Las Vegas’s hotel rooms.
  • There is enough concrete in the Hoover Dam to build a two-lane highway from San Francisco to New York City.
  • Kansas produces enough wheat each year to feed everyone in the world for about two weeks.
  • The Library of Congress contains approximately 838 miles of bookshelves—long enough to stretch from Houston to Chicago.
  • The entire Denver International Airport is twice the size of Manhattan.
  • A highway in Lancaster, California, plays the “William Tell Overture” as you drive over it, thanks to some well-placed grooves in the road.
  • The total length of Idaho’s rivers could stretch across the United states about 40 times.
  • The one-woman town of Monowi, Nebraska, is the only officially incorporated municipality with a population of 1. The sole 83-year-old resident is the city’s mayor, librarian, and bartender.
  • The number of bourbon barrels in Kentucky outnumbers the state’s population by more than two million.

 

THOUGHTS FROM VANGUARD

An excellent interview with Dan Berkowitz, an investment analyst with Vanguard Investment Strategy Group:

“Active or passive? What investors and advisors need to consider”

You often hear that actively managed funds tend to outperform in bear markets. Is that true, and can you speak to some of the misconceptions around fund performance?

Dan Berkowitz: Yes, this one has come up increasingly so, given where equity and fixed income valuations are these days. It’s a natural question. And it’s a common assumption that active managers as a group provide a better degree of downside protection in poorly performing market environments, or bear market environments, whether through a greater allocation to cash or through portfolio management skill. And there certainly are strategies in the active and index universe that are designed to provide a degree of downside protection.

But when we look at active managers again as a group, we just don’t see that they provide, at a high level, a degree of downside protection.

https://www.advisorperspectives.com/articles/2018/10/15/active-or-passive-what-investors-and-advisors-need-to-consider

 

THIS IS WHAT A SOUTHERNER LIKES ABOUT THE SOUTH

From my BFF Patti—the first one is her theme song:

  • A true Southerner knows you don’t scream obscenities at little old ladies who drive 30 MPH on the freeway. You just say, “Bless her sweet little heart.”
  • There is no magazine named “Northern Living” for good reason. There ain’t nobody interested in moving up there, so nobody would buy the magazine!
  • Southerners know everybody’s first name: Honey, Darlin’, Shugah.
  • Only a Southerner knows the difference between a hissie fit and a conniption fit, and that you don’t “HAVE” them, you “PITCH” them.
  • Only a Southerner can show or point out to you the general direction of “yonder.”
  • Only a Southerner knows exactly how long “directly” is, as in: “Going to town, be back directly.”
  • Only Southerners grow up knowing the difference between “right near” and “a right far piece.” They also know that “just down the road” can be 1 mile or 20.
  • Only a Southerner both knows and understands the difference between a redneck, a good ol’ boy, and po’ white trash.
  • And to those of you who are still having a hard time understanding all this Southern stuff, bless your hearts, I hear they’re fixin’ to have classes on Southernness as a second language!

Now, Shugah, send this to someone who was raised in the South or wish they had a ‘been! If you’re a Northern transplant, bless your heart—fake it. We know you got here as fast as you could.

 

WHY I’M A GURU SKEPTIC

Some recent market prognostications:

March 2013

Welcome, 2016: The Coming End of the 16-Year Bear Market

Two well-regarded forecasters, the Leuthold Group and Jeremy Grantham of GMO, both see low single digit returns from stocks over the next 7 years from current levels.

Could still be, but we’re 5¾ years into the 7 years, and the annual total return has been 14%. To meet an annualized 6% return, the market loss will have to annualize at –14% until March 2020.

https://seekingalpha.com/article/1288681-welcome-2016-the-coming-end-of-the-16-year-bear-market?page=7

December 2013

Dow is up more than 5% five consecutive years now. A sixth such year has not happened before in history. A 5-year bull trend only occurred once before, in the 1990s, and was followed by 3 down years. Russell 2k rallies of similar size and duration to 2013’s (excluding accelerations from major bear lows) are shown below. In each case all the gains were given back the following year…

To sum up, from a pure statistical perspective, removing any notion of the bigger picture, the probability for 2014 is at best a flat year for equities with a significant drawdown on the way, and at worst a significant down year. Stats are just a guide, but we see united predictions across a range of measures, drawn together at the top of the page.

Yet the bullish momentum of the market and “this time is different” thinking (Fed trumps all, equities need revaluing due to suppressed bonds and cash yields) are making for widespread complacency about (and dismissal of) the parallels…

Whilst we should not overly rely on any one indicator or discipline, it’s the collective case that gives me such conviction on the short side (disclosure: short stock indices).

S&P total annual return (dividends reinvested) 2014 … 15.9%

 

February 2014

The Bear Market of 2014–2017 Is Starting. Why, How & When (Revisited)

As markets opened up on January 2, 2014, everyone was excited. After all, what was not to like? The stage was set for the bull market to continue, or so everyone thought.

How little did they know. What they didn’t (and still don’t) know is that the bull market topped out just two days earlier, on December 31, 2013, at 16,588 on the DOW (mathematical top, the actual top will come later in the year), ushering in the final stage of the Cyclical Bear Market that will take us into the final 2017 bottom.

S&P total annual return (dividends reinvested) from 2014 to the end of 2017 … 15.9%

http://www.investwithalex.com/the-bear-market-of-2014-2017-is-starting-why-how-when/

http://www.marketoracle.co.uk/Article43692.html

February 2015

Opinion: 7 danger signs of stocks’ coming bear market

Protect your portfolio now before the downturn begins

With the US stock market trying to surpass its all-time highs, many investors still don’t see the problem. After all, if the market is going up, why worry? Lately, many bulls feel invincible.

The problem is that if you wait until a bear market is formally announced, you will have lost a chunk of your paper profits. The key is to slowly take money off the table now. You may also protect your stock portfolio using hedging strategies, such as buying options.

S&P total annual return (dividends reinvested) to October 2018 … 11.5%

https://www.marketwatch.com/story/7-danger-signs-of-stocks-coming-bear-market-2015-02-13

January 2017

Despite Trump euphoria, Wall Street’s 2017 forecast is the most bearish annual outlook in 12 years

S&P total annual return (dividends reinvested) 2017 … 20.9%

https://www.cnbc.com/2017/01/03/streets-2017-forecast-is-the-most-bearish-annual-outlook-in-12-years.html

And how about other gurus?

USA Today April 2007

From an interview with Steve Ballmer, CEO of Microsoft

“There’s no chance that the iPhone is going to get any significant market share. No chance,” said Ballmer. “It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.”

iPhone Sales in billions

2007 – 1.39

2012 – 125

2017 – 216.8

https://www.statista.com/statistics/276306/global-apple-iphone-sales-since-fiscal-year-2007/

https://usatoday30.usatoday.com/money/companies/management/2007-04-29-ballmer-ceo-forum-usat_N.htm

 

WHAT A DIFFERENCE

From my friend Leon:

Here are some statistics for the year 1910:

  • The average life expectancy for men was 47 years.
  • Fuel for this car was sold in drugstores only.
  • Only 14 percent of homes had a bathtub.
  • Only 8 percent of homes had a telephone.
  • There were only 8,000 cars and only 144 miles of paved roads.
  • The maximum speed limit in most cities was 10 mph.
  • The tallest structure in the world was the Eiffel Tower!
  • The average US wage in 1910 was 22 cents per hour, and the average US worker made between $200 and $400 per year.
  • A competent accountant could expect to earn $2000 per year, a dentist $2,500 per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical engineer about $5,000 per year.
  • More than 95 percent of all births took place at home.
  • Ninety percent of all doctors did not have a college education. Instead, they attended so-called medical schools, many of which were condemned in the press and the government as ”substandard.“
  • Sugar cost 4 cents a pound; eggs were 14 cents a dozen; coffee was 15 cents a pound.
  • Most women only washed their hair once a month and used Borax or egg yolks for shampoo.
  • Canada passed a law that prohibited poor people from entering into their country for any reason.
  • The population of Las Vegas, Nevada, was only 30!
  • Crossword puzzles and iced tea hadn’t been invented yet.
  • Two out of every 10 adults couldn’t read or write, and only 6 percent of all Americans had graduated from high school.
  • Marijuana, heroin, and morphine were all available over the counter at the local corner drugstore. Back then, pharmacists said, “Heroin clears the complexion, gives buoyancy to the mind, regulates the stomach and bowels, and is, in fact, a perfect guardian of health.”
  • There were about 230 reported murders in the entire United States!

AND FOR THOSE OF YOU OLD ENOUGH TO REMEMBER 1955

From my friend Peter:

If they raise the minimum wage to $1.00, nobody will be able to hire outside help at the store.

When I first started driving, who would have thought gas would someday cost 25 cents a gallon. I’m leaving the car in the garage.

Did you see where some baseball player just signed a contract for $50,000 a year just to play ball? It wouldn’t surprise me if someday they’ll be making more than the president.

The fast food restaurant is convenient for a quick meal, but I seriously doubt they will ever catch on.

No one can afford to be sick anymore. At $15.00 a day in the hospital, it’s too rich for my blood.

NO COMMENT

From YouTube Pun Based Humor:

COOL!

You probably need to be an academic to have ever heard about SSRN, but “it’s an open-access online preprint community providing valuable services to leading academic schools and government institutions…SSRN is instrumental as a starting point for PhD students, professors, and institutional faculty to post early-stage research, prior to publication in academic journals.”

https://www.elsevier.com/solutions/ssrn

SSRN’s eLibrary provides 828,739 research papers from 406,723 researchers across 30 disciplines.

“Congratulations, Harold. You are currently in the top 10% of Authors on SSRN by all-time downloads.”

 

DOING GOOD

These organizations topped the Chronicle’s new cash-support ranking.

RANK ORGANIZATION CASH SUPPORT
1 United Way Worldwide $3,260,274,867
2 Salvation Army $1,467,750,000
3 ALSAC/St. Jude Children’s Hospital $1,314,189,700
4 Harvard University $1,283,739,766
5 Mayo Clinic $1,140,619,378
6 Stanford University $1,110,664,853
7 Boys & Girls Clubs of America $909,035,450
8 Compassion International $819,417,089
9 Cornell University $743,502,739
10 Lutheran Services in America $731,566,533


https://www.philanthropy.com/specialreport/the-100-u-s-charities-that-ra/183

HOPE SPRINGS ETERNAL

From Financial Advisor magazine:

AQR Quant Genius Apologizes to Clients over Performance

Wall Street’s quant wizards often argue that many of their math-driven strategies are designed for the long-term. But they’ve rarely had to shout this loud.

Global equities posted the worst run in six years in “Red October,” and it tore through the investing styles that slice and dice assets based on traits like momentum and growth. Most factor funds, as they are known, fell in concert with stocks. That not only capped an already miserable year, it threw into doubt their diversification benefits—forcing advocates onto the defensive.

Cue Cliff Asness, godfather of quant investing and co-founder of the firm which helped popularize factors, AQR Capital Management. In a 23-page, 17,000-word blog post in October he acknowledged the strategies AQR favors have had “tough times,” predicted no miracle bounce back, but argued that evidence and common sense dictate they will ultimately prevail.

Cliff is one of the smartest and most professional money managers I know, and his honest, thoughtful response to his funds’ performance is a reflection of his quality. Although I’m a skeptic, we continue to follow his work.

https://www.fa-mag.com/news/aqr-plays-defense-as-crisis-of-confidence-looms-for-quant-land-41812.html

 

FINANCIAL PLANNING—A GREAT PROFESSION

If you have a few minutes to kill, here is a link to an interview I did at the Financial Planning Annual Convention:

https://www.assettv.com/player/assettv-us-sign-off-player/204348

 

HMMM…

From my friend Bill G.:

One of my favorite authors, Upton Sinclair, is credited with saying, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

Kind of reminds me of regulators and politicians.

THE EVENSKYS DO NEW YORK

STATISTICAL NOISE

An excellent summary by Michael Kitces of Mark Hulbert’s excellent review of Fama and French’s excellent article “Volatility Lessons” in the Financial Analysts Journal.

It’s generally understood that markets can be volatile in the short-term, and that it’s necessary to evaluate an investment strategy (or the performance of an investment manager or financial advisor) over an extended period of time in order to really judge their efficacy. However, in a recent paper by Eugene Fama and Kenneth French in the Financial Analysts Journal, it turns out that even over 10-year periods—generally viewed as “long-term” by most advisors and clients making evaluations of investment results—stock market volatility is great enough that there’s still a material risk that a superior strategy or factor will underperform. For instance, their analysis suggests that otherwise-long-term-outperforming value strategies still lag in 9% of randomly created 10-year investment horizons using historical data…implying that the underperformance of value over the past decade is still well within the range of normal statistical noise (and not necessarily a signal that value investing itself has lost its value). Similarly, given their even-higher volatility, there is a 24% chance that small-caps will underperform over a 10-year cycle (even when assuming their historical return premium is persisting) and a 16% chance that stocks will underperform Treasuries (even if their historical equity risk premium remains valid). On the one hand, the important implication of the research is that even 10 years is not necessarily long enough to determine if a manager (or a factor) has lost its ability to outperform. On the other hand, when the researchers also find that even over 20 years, there’s an 8% chance that equities will underperform Treasuries despite the equity risk premium…

https://www.kitces.com/blog/weekend-reading-for-financial-planners-nov-10-11-2/.

https://www.wsj.com/articles/your-fund-performance-is-even-more-about-luck-than-you-thought-1541387460

https://www.cfapubs.org/doi/abs/10.2469/faj.v74.n3.6?mod=article_inline&

 

FASCINATING VIEW OF ECONOMIC GROWTH OVER THE LAST SIX DECADES

Keep your eye on China…

From my friend Peter:

https://youtu.be/MT5hszbwW9U

 

WHY TEACHERS DRINK

From my friend Judy:

The following questions were set in last year’s GED examination. These are genuine answers (from 16-year-olds)…and they WILL breed.

Question Answers
Name the four seasons. Salt, pepper, mustard and vinegar.
What causes the tides in the ocean? The tides are a fight between the earth and the moon. All water tends to flow towards the moon because there is no water on the moon, and nature abhors a vacuum. I forget where the sun joins the fight.
What guarantees may a mortgage company insist on? If you are buying a house they will insist that you are well-endowed.
In a democratic society, how important are elections? Very important. Sex can only happen when a male gets an election.
What are steroids? Things for keeping carpets still on the stairs
Name a major disease associated with cigarettes. Premature death
How can you delay milk turning sour? Keep it in the cow (simple but brilliant).
How are the main 20 parts of the body categorized (e.g., the abdomen)? The body is consisted into 3 parts—the brainium, the borax and the abdominal cavity. The brainium contains the brain, the borax contains the heart and lungs and the abdominal cavity contains the five bowels: A, E, I, O, U.
What is a terminal illness? When you are sick at the airport.
What does the word ‘benign’ mean? Benign is what you will be after you be eight.
What is a turbine? Something an Arab or Shreik wears on his head

DEPRESSING DATA

 

I LOVE THE INVESTMENT INSIGHTS FROM THE MEDIA

Two headlines a few hours apart:

Apple Beats Q4 Expectations with Best September Quarter Ever

https://www.zdnet.com/article/apple-beats-q4-expectations-with-best-september-quarter-ever/

Apple Stock Falls on Light Sales Guidance for Holiday Quarter

https://www.investors.com/news/technology/click/apple-stock-q4-2018-earnings/

 

BEST & WORST

States to live in according to USA Today:

BEST (Top 5)

#1 – Massachusetts

#2 – New Hampshire

#3 – Connecticut

#4 – Colorado

#5 – Minnesota

 

WORST (Bottom 5)

#50 – Mississippi

#49 – West Virginia

#48 – Louisiana (at least my home state wasn’t #50)

#47 – Alabama

#46 – Kentucky

 

AND

#33 – Texas

#28 – Florida

Obviously weather wasn’t a major factor.

https://www.usatoday.com/picture-gallery/travel/experience/america/fifty-states/2018/11/06/whats-best-american-state-live-all-50-states-ranked/1901557002/

 

SCARY

Student loan debt is now a crisis, says U.S. Department of Education Secretary Betsy DeVos.

The Latest Student Loan Debt Statistics

Personal finance website Make Lemonade says that the student loan debt is now the second highest consumer debt category—second only to mortgages and higher than credit card debt.

According to Make Lemonade, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt. The average student in the Class of 2016 has $37,172 in student loan debt. The average student in the Class of 2017 has almost $40,000 in student loan debt.

“Our higher-ed system is the envy of the world, but if we as a country do not make important policy changes in the way we distribute, administer and manage federal student loans, the program on which so many students rely will be in serious jeopardy,” DeVos said, according to her remarks released by the Education Department.

https://www.forbes.com/sites/zackfriedman/2018/11/28/student-loan-debt-crisis/#da0d13621e30

 

FUN

From my friend Alex:

IT’S FREE!!!

Thanks to my partner Josh, the electronic version of my book, Hello Harold, is now free on Amazon.

Here’s the story:

Welcome to Hello Harold (that’s me, Harold Evensky). I’ve been a practicing financial planner for over three decades; financial planning is my avocation as well as my vocation. I’ve had the privilege of participating in the growth of my profession, serving on the national Board of the International Association for Financial Planning, as Chair of the Certified Financial Planning Board, the International Certified Financial Planning Board of Standards, as well as on advisory boards for Charles Schwab and TIAA-CREF.

In those three decades plus, I’ve seen a great many changes, not only in the markets but also in how investors—and their advisors—respond to them. Some of those responses make very little sense. Financial planning is a powerful tool that can help you develop and maintain the quality of life you want. Unfortunately, there’s a ton of noise and nonsense foisted on investors that can undermine their financial success.

Maybe you’re one of the many unlucky folks who’ve tried using a broker or financial advisor and wound up with one of the few less than ethical ones who had you invest in easy-answer funds that did more for the advisor’s bottom line than yours. Maybe you decided to go it alone. Unfortunately, investing is not a simple task, and without a grasp of the fundamentals, many investors wind up making costly mistakes. Although there are innumerable books—many of them very good—designed to help you invest wisely, many are too long, too technical, too boring, too commercial, or too simplistic to hold the reader’s attention.

So it’s my turn. I decided my book would be just right—not too long, not too short, not too technical, not too simplistic, not commercial, and, most important, fun to read. Hello Harold gives you the foundation you need to navigate the markets and plan your financial future. I take you along with me on phone calls and meetings, conferences and classrooms, and let you eavesdrop on my thoughts, conversations, and brainstorming sessions with clients, colleagues, and students. I introduce you to actionable concepts that will make you a far better investor, with a sound plan for your future. You may even have some fun along the way.

Unlike with most books, don’t feel obligated to move from page one through to the end. Each chapter stands on its own, so you can skip and jump to your heart’s content, chasing subjects you find of interest in any order that appeals to you. No matter where you land, whether it’s cash flow or market timing or taxes or any of a myriad of essential topics, you’re likely to find something you hadn’t considered before in quite that way. Each chapter is designed to give you insights that will improve your financial bottom line and your chances of achieving your financial goals.

https://www.amazon.com/Hello-Harold-Veteran-Financial-Investor-ebook/dp/B019G0SSJ4/

 

SEASICK?

I’ll close with a few pieces of advice.

  • Don’t get seasick; don’t pay attention to the daily financial pornography. It’s noise, not news.
  • Plan for the long term, not the last 10 minutes.
  • If the world doesn’t come to an end and you plan an investment intelligently for the long term (that’s what we do for our clients), your financial life will be solid. If the world really comes to an end, you won’t care.

Hope you enjoyed this issue, and I look forward to “seeing you” again in a couple months.

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 6 – October 2018

NewsLetter Vol. 11, No. 5 – September 2018

 

www.EK-FF.com

NewsLetter Vol. 11, No. 6 – October 2018

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Dear Reader:

I’M LEADING THIS NEWSLETTER WITH THIS BOOK

Because I believe it’s so valuable that every one of my readers needs to download a copy. Prepared by Josh Mungavin, my partner and one of the best young planners in the country, it’s an invaluable resource (and the price [$0] couldn’t be better).

Hope you enjoyed this issue, and I look forward to “seeing you” again in a couple months.

Family Info Organizer

The Family Information Organizer is here to help you navigate loss while also making sure you have everything you need in times of emergency or natural disaster. With this book, you will:
• be motivated to gather all your essential information now, rather than when it’s too late.
• have all your important information in one place.
• have peace of mind in times of loss or emergency.
• be able to make sure your family knows everything they need to when you’re not around.
• be able to share this fantastic tool with your friends and family.

Don’t be caught unprepared; use The Family Information Organizer today!

Click here to download the book for free.

WHO KNEW?

Lubbock is home to six award-winning wineries, and the High Plains grows 90 percent of wine grapes in the state of Texas. 

NOT GENERALLY ONE OF MY FAVORITE SOURCES

However, the Motley Fool piece on long-term care (sent to me by friend and LTC expert Bill Dyess) is quite useful.

Click here for Motley Fool article.

AN EXCELLENT ARTICLE

Morningstar columnist Mark Miller has written an informative article called “Safeguarding Your Wealth from the Effects of Cognitive Decline.” I must admit I’m a bit biased, because this was one of his tips:

Work with a fiduciary adviser. Avoid any financial adviser who is not a fiduciary—a legal definition that requires an adviser to put the best interest of a client ahead of all else. This point—and my argument for portfolio simplicity—is illustrated by an important story that appeared recently in the New York Times detailing abusive trading practices by a stock broker in the account of a couple well into their 80s that was being monitored by their daughter.

The fall of the Obama-era fiduciary rule for advisors may complicate the task of finding a trustworthy adviser. But there really is a simple way through the maze. If in doubt, ask anyone you are considering hiring to sign the fiduciary oath—a simple, legally enforceable contract created by the Committee for the Fiduciary Standard. By signing, the advisor promises to put the client’s interest first; to exercise skill, care and diligence; to not mislead you; and to avoid conflicts of interest. You can download the oath at  by clicking here.

HOW MUCH?

How much money do Americans have in their 401(k)s? From CNBC:

20 to 29           $11,500

30 to 39           $42,700

40 to 49           $103,500

50 to 59           $174,200

60 to 69           $192,800

Click here for full article.

MORE ROOM AT THE TOP

From my friend Ron:

Reaching the status of “millionaire” used to be a big deal. But with rising inflation, a higher cost of living in cities, and changing perceptions around wealth, the six zero milestone doesn’t mean as much anymore…there are over 16 million millionaires globally, and 4.3 million in the United States alone.

Individuals with net worth > $50,000,000

Asia                        35,880

Europe                    35,180

North America         44,000

Latin America            4,220

Middle East               4,740

Russia                      2,870

Australia                   1,850

Africa                        1,190

Click here for more.

ON THE THEME OF RICH, HOW ABOUT THE SUPER-RICH?

Worldwide, there are 255,810 individuals with a net worth of at least $30 million. Here are the ten cities with the most super-rich residents:

Osaka                             2,730

Washington, D.C.          2,735

San Francisco                2,820

Chicago                          3,255

London                           3,830

Paris                               3,950

Los Angeles                   5,250

Tokyo                             6,785

New York                       8,865

Hong Kong                   10,010

Click here to read more.

AMAZING STORY OF PEOPLE COMING TOGETHER TO HELP OTHERS

My friend Peter shared with me this remarkable 11-minute video, narrated by Tom Hanks, about the amazing boatlift out of Manhattan on 9/11 that rescued about 500,000 people in about 9 hours. The video has been seen by 9 million people, but just in case you have not seen it, please watch it and remember we all have the ability to come together when we must.

To watch the video click here.

TOP 1%

Even more on the rich from USA Today:

 The United States is enjoying an era of unprecedented wealth and prosperity. Economic output and household incomes are at all-time highs, while unemployment is at its lowest level in well over a decade. However, the growth has not benefited all Americans equally, and in much of the country, wealth is becoming increasingly concentrated in the hands of a few.

From the end of World War II through the early 1970s, the average income growth of the bottom ninety-nine percent of earners roughly tripled the 34 percent growth rate among the wealthiest one percent.

Since, however, the strengthening of the middle class has ground nearly to a halt, while the wealth of the one percent has grown exponentially.

The average income for the top one percent spiked by 216.4 percent from 1973 to 2007, but it increased by just 15.4 percent for all other earners. From 2009 to 2015, the average income for the wealthiest Americans grew by 33.9 percent, more than triple the income growth of 10.3 percent among the remaining ninety-nine percent.

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To read more click here.

CALL HOME

From an AARP survey: How frequently should an adult child call his or her mother?

Once a Day                                                     27%

Two or More Times a Week                           23%

Once a Week                                                  38%

Once a Month                                                 12%

A GOOD GIG

From USA Today:

College Football’s 25 Highest-Paid Coaches

                 Name                                  School             Total Compensation

#1        Nick Saban                          Alabama                   $8,307,000

#2        Urban Meyer                        Ohio State                $7,600,000

#3        Jim Harbaugh                      Michigan                  $7,504,000

#4        Jimbo Fisher                        Texas A&M              $7,500,000

#5        Gus Malzahn                        Auburn                     $6,705,656

#25      Bobby Petrino                      Louisville                  $3,980,434

Just a tad more than professors make.

THERE IS A DIFFERENCE

From my friend Michael:

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MOTHER OF ALL SCAMS

From ThinkAdvisor:

Cryptocurrencies are the ‘“mother of all scams,” and blockchain is “the most overhyped—and least useful—technology in human history: In practice it is nothing better than a glorified spreadsheet or database,” Nouriel Roubini, professor of economics at New York University’s Stern School of Business, told senators on Thursday.

Roubini, who famously predicted the 2008 credit and housing bust, testified before the Senate Banking Committee during a hearing on the cryptocurrency and blockchain ecosystem, that the “crypto bloodbath is in full view” and that “the new refuge of the crypto scoundrels is ‘blockchain.’”

Wonder what he really thinks.

To read more click here.

BEN FRANKLIN WHO?

From the Wall Street Journal editorial board via my friend Knut:

Most Americans can’t pass the civics test required of immigrants

These days it’s popular to lament that immigrants are destroying America’s national identity, but maybe we’re getting it backward. When the Woodrow Wilson National Fellowship Foundation recently put questions from the U.S. Citizenship Test to American citizens, only one in three could pass the multiple choice test.

It’s embarrassing. According to the foundation, only 13% of Americans knew when the Constitution was ratified, and 60% didn’t know which countries the United States fought in World War II. Most couldn’t correctly identify the 13 original colonies, which at least is something of a teaser. But only 24% could identify something that Ben Franklin was famous for, and 37% thought it was for inventing the light bulb.

Even with a highly contested Supreme Court nomination now in play in the Senate, 57% of Americans couldn’t say how many Justices are on the Court. Older Americans did much better than younger Americans—only 19% of the under-45 crowd passed—which probably reflects the declining state of American public schools. None of this augurs well for the future of self-government.

We’ve always thought it important that immigrants must pass a test on the basics of American history and civics before they can be sworn in as citizens. Immigrants who are motivated to become citizens will take the time to learn. The real threat to American freedom is the failure of current citizens to learn even the most basic facts about U.S. history and government.

OUCH!

Parents Spend Twice as Much on Adult Kids Than Retirement, Survey Says:

Americans are contributing twice as much to their adult children as they are to retirement, according to a new study.

U.S. parents spend $500 billion annually supporting and giving to their adult children aged 18 to 34, double the amount they contribute each year to their retirement accounts, according to a new study conducted by Merrill Lynch in partnership with Age Wave.

While 79 percent of more than 2,500 American parents surveyed said that they give at least some financial support to their children, two-thirds of American parents report having sacrificed their own financial security for their children.

For full article click here.

A MAP OF EVERY BUILDING IN AMERICA

Quite amazing, but for real. Use two fingers to negotiate.

Click here to view map.

WOW!

From a presentation at Insiders Forum:

  • 1.3 million apps in the iTunes store
  • 323 days of video uploaded to YouTube every minute
  • 1.39 billion people on Facebook, making it the largest country on earth

COOL PARTNERS

Deena and Katie with our good friends Yvonne Racz Key, Artistic Director at Ballet Lubbock, and Maestro David Cho, Music Director of the Lubbock Symphony Orchestra.

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PLAY AND LEARN

A note from Jim about a very useful “game” from the American Academy of Actuaries:

Click here for a link to the Social Security Game. It is a neat calculator that allows anyone to plug in their preferences for solving the SS shortfall. You quickly realize that we can make the system solvent and even increase the benefits. The choices were relatively painless when I first played the game 5 years ago, but they become increasingly difficult each year we delay taking action.

Here’s how the Academy describes the game. “While Social Security isn’t in danger of collapse, changes will be need to be made to pay full retire benefits after 2034. Everyone thinks it’s easy to solve Social Security’s financial problems, but can you? Play the game to explore options for Social Security reform and how changes will affect younger workers, retirees, and the program’s long-term health.”

IT’S BEEN A FEW GOOD MONTHS

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Receiving the Frankel Fiduciary Prize for contributions to the preservation and advancement of fiduciary principles in public life. The prize is named after Professor Tamar Frankel of the Boston University School of Law.

Click here for video.

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Receiving the Committee for the Fiduciary Standard Fiduciary Award from my friend Patti Houlihan.

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Deena receives the Leadership Award bestowed at the Insider’s Forum, a conference that brings together the leading figures of the financial planning profession during a main stage presentation.

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Named for P. Kemp Fain, Jr., this award is the pinnacle of recognition in the financial planning profession, honoring one exceptional individual who has made outstanding contributions to the financial planning profession. Fain was a pioneer in the financial planning profession, blazing trails in professional associations, the CFP®certification, and the profession at large. In keeping with Fain’s example, nominees for the award are individuals who have made significant contributions to the financial planning profession in the areas of service to society, academia, government, and professional activities.

Click here to watch video.

SOUNDS GOOD, BUT…

From the Wall Street Journal via my friend Monty:

The new venture, Aperture Investors LLC, builds on a concept he championed in his last months at AllianceBernstein: Money managers should only charge higher fees than exchange-traded funds when they beat the market. Armed with as much as $4 billion in money to manage from Italian insurer Assicurazioni Generali SpA, Aperture has hired two portfolio-management teams. One will invest in stocks and bonds from emerging markets and the other will buy or bet against corporate debt.

Aperture is putting more than its fees at stake. Employees will also be paid based on how they perform against the market.

Click here for full article.

Four “catches”:

  • When the manager beats the “market,” the fee can rise to 2+%.
  • What’s the “market”? Selection of the benchmark is an easy but insidious way to game the system.
  • If the managers don’t beat the “market,” the fund and managers still get paid. So much for identity of interest.
  • No element of “risk adjusted” return. If they’re having a lousy quarter, the managers have nothing to lose by going for broke and taking significant risk. If the portfolio tanks, they still get paid and the investors are left holding the bag.

Needless to say, I’m a skeptic when it comes to performance-based compensation. 

QUOTES

From my friend Judi, who collects quotes:

  • Discovery consists of seeing what everybody has seen and thinking what nobody has thought. (Albert Szent-Gyorgi)
  • Go confidently in the direction of your dreams. Live the life you have imagined. (Henry David Thoreau)
  • Success is moving from failure to failure with no loss of enthusiasm. (Winston Churchill)
  • Never doubt a small group of thoughtful, committed people can change the world. Indeed, it’s the only thing that ever has. (Margaret Mead)
  • Everybody can be great, because anybody can serve. You don’t have to have a college degree to serve. You don’t have to make subject and object agree to serve. You don’t have to know about Plato and Aristotle to serve. You don’t have to know Einstein’s Theory of Relativity to serve. You only need a heart full of grace; a soul generated by love. (Martin Luther King)
  • Life moves pretty fast. If you don’t stop and look around once and a while, you could miss it. (Ferris Bueller)

And a few of mine:

  • When all the experts and forecasters agree—something else is going to happen. (Bob Farrell, Merrill Lynch)
  • Investment survival has to be achieved in the short run, not on average over the long run. That’s why we must never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average. Investors have to make it through the low points. (Howard Marks)
  • Just as markets anticipate eight of the next five recessions, so too they can look forward to eight of the next five bull market recoveries. (Howard Marks)
  • Millions saw the apple fall, but Newton was the one who asked why. (Bernard Baruch)
  • I am proud to be paying taxes in the United States. The only thing is—I could be just as proud for half the money. (Arthur Godfrey)
  • People who complain about taxes can be divided into two classes: men and women. (anonymous)
  • There are two kinds of economists, those who don’t know and those who know they don’t know. (anonymous)
  • In theory, there is no difference between theory and practice. But, in practice, there is. (Jan La van de Snepscheut)
  • The better the meal, the lousier the deal. (Veteran Broker)

WHICH HALF ARE YOU?

According to Prudential’s first-ever Financial Wellness Census, the nation is almost evenly split between people who are doing well financially (46 percent) and those who are struggling (54 percent). Roughly 30 percent of respondents have an inaccurate perception of their financial state, according to the report. 

THE NEXT GEN

It’s very exciting to see the future of our profession. These are two students of Dr. Sean Pfeiffer (my former teaching assistant) in the financial planning program at Edinboro University that I met at the Financial Planning Association Convention.

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WE ARE BACK WHERE WE WERE

From the Financial Times:

Retirement savers will need to educate themselves and take greater ownership of their fate…

Barbara Roper, a Colorado-based director of investor protection at the Consumer Federation of America, is disappointed that “we are back where we were.” The onus once again falls almost entirely on retirement investors to protect themselves, she says.

I would revise that to say “ALL investors.”

To repeat—time to be sure you use the Committee for the Fiduciary Standard “Putting Your Interest First” Oath.

Click here for Financial Times article.

ON ONE HAND, THEN ON THE OTHER

From CNBC:

This bull market run has echoes of the late 1920s, Nobel Prize–winning economist Shiller says.”

Also from CNBC:

Recession risk is ‘below average’ for the next three years, Goldman says.

I think my friend Alex captured it best:

“Reminds me of what my one of my Chief Master Sergeants once told me: ‘Colonel, I feel strongly both ways!’”

$$$$$$$$

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Click here to read more.

SPEAKING AT THE INSIDERS FORUM IN SAN DIEGO

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HOW SMART ARE YOU?

From my friend Leon:

DON’T LOOK AT THE ANSWERS UNTIL YOU HAVE YOUR OWN!!

FIRST QUESTION:

You are a participant in a race. You overtake the second person. What position are you in?

~~~~~~~~~~~~~~~~~~~~

 

#1 ANSWER: If you answered that you are first, then you are absolutely wrong! If you overtake the second person and you take his place, you are in second place! Try to do better next time. Now answer the second question, but don’t take as much time as you took for the first question, OK?

  ~~~~~~~~~~~~~~~~~~~~

SECOND QUESTION:

If you overtake the last person, then you are…?

~~~~~~~~~~~~~~~~~~~~

 

#2 ANSWER: If you answered that you are second to last, then you are…wrong again. Tell me, sunshine, how can you overtake the last person?

YOU’RE NOT VERY GOOD AT THIS, ARE YOU?

~~~~~~~~~~~~~~~~~~~~

THIRD QUESTION:

Very tricky arithmetic! Note: this must be done in your head only. Do not use paper and pencil or a calculator. Try it.

~~~~~~~~~~~~~~~~~~~~

Take 1000 and add 40 to it. Now add another 1000 now add 30. Add another 1000. Now add 20. Now add another 1000. Now add 10. What is the total?

 

#3 Did you get 5000?

The correct answer is actually 4100. If you don’t believe it, check it with a calculator!

Today is definitely not your day, is it?

 

Maybe you’ll get the last question right…maybe.

~~~~~~~~~~~~~~~~~~~~

FOURTH QUESTION:

Mary’s father has five daughters: 1. Nana, 2. Nene, 3. Nini, 4. Nono, and ???

What is the name of the fifth daughter?

~~~~~~~~~~~~~~~~~~~~

 

#4 Did you answer Nunu? No, of course it isn’t! Her name is Mary! Read the question again!

~~~~~~~~~~~~~~~~~~~~

OKAY, NOW THE BONUS ROUND, A FINAL CHANCE TO REDEEM YOURSELF:

A mute person goes into a shop and wants to buy a toothbrush. By imitating the action of brushing his teeth, he successfully expresses himself to the shopkeeper, and the purchase is done. Next, a blind man comes into the shop who wants to buy a pair of sunglasses; how does he indicate what he wants?

 

It’s really very simple: he opens his mouth and asks for them.

Does your employer actually pay you to think? If so, do not let them see your answers for this test! 

FINANCIAL PLANNING IS IMPORTANT

I know I’m biased, but that doesn’t mean it’s not true.

From Mary Beth Franklin’s excellent “ONRETIREMENT” column in Investment Advisor:

Widows get bad Social Security info—Agency gives wrong guidance 82% of the time, so survivors must prepare.

From a Merrill Lynch/Age Wave survey “Widowhood: The Loss Couples Rarely Plan for—and Should.”

More than three-quarters of the widows—78%—described becoming a widow as “their single most difficult and overwhelming life experience,” and 53% said they and their spouse did not have a plan for what would happen if one of them passed away.

Half of the widows experienced a decline in household income of 50% or more. At the same time, widows also faced the complex tax of juggling multiple incoming assets, including Social Security survivor benefits, life insurance, their spouse’s pensions, and retirement savings. For more than four in 10 women, widowhood is a trigger to begin working with a financial advisor, according to the survey.

Click here for full article.

WIFI WITH YOUR COFFEE

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Click here to see more.

I HAVE COMPANY

I’ve been teaching my Wealth Management class for many years to be wary of the common rule of thumb that someone will need 70–80% of their prior expenses in retirement. Well, my former TA and now Professor Cagla shared with me a Wall Street Journal article, “How Much Money Will You Really Spend in Retirement? Probably a Lot More Than You Think,” by Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University, and Aline Holzwarth, a Principal of Dan Ariely’s Center for Advanced Hindsight at Duke:

It’s the question that plagues pretty much everybody as they look ahead: How much money will I need in retirement? Most likely, a lot more than you think…

The answer most people gave was about 70%. Did you also choose a percentage around 70%–80%? You’re not alone. In fact, we, too, thought that 70% sounded reasonable. But reasonable isn’t the same as right. So we asked the research participants how they arrived at this number. And we discovered that it wasn’t because they had truly analyzed it. It was because they recalled hearing it at some point—and they simply regurgitated it on demand. The 70%, in other words, is the conventional wisdom. And it’s wrong…

The results were startling: The percentage we came up with was 130%—meaning they’d have to save nearly double the amount they originally thought.

NEED HELP PAYING FOR COLLEGE? THERE’S AN APP FOR THAT

The U.S. Department of Education unveiled the My Student Aid app to help make the 2019–20 FAFSA (Free Application for Federal Student Aid) application process easier.

https://studentaid.ed.gov/sa/fafsa

Click here for NPR article.

LUNCH WITH ARIEL’S JOHN ROGERS

The active versus passive debate continues. From Kiplinger’s Personal Finance:

“John Rogers is a double anomaly. At a time when investors are increasingly turning to index funds, he picks individual stocks. And at a time when the markets prefer growth-oriented companies, he buys value-based shares…he launched Chicago-based Ariel Investments in 1983….The firm’s flagship public fund, Ariel Fund, opened three years later….Rogers became convinced in the 1980s that smaller companies that were less understood offered significant opportunities.” U.S. News ranked Ariel #11 out of 397 Mid-Cap Value funds.

I need to preface this with the observation that Mr. Rogers is one of the finest and most respected active managers in the country. I also share his value and small cap bias. Unfortunately, as reflected in the Morningstar data below comparing Ariel to a S&P Mid-Cap Value ETF, that does not ultimately translate to investment success.

10-2018_15

Sharpe Ratio—A measure that indicates the average return minus the risk-free return divided by the standard deviation of return on an investment.

Tax Cost Ratio—The Morningstar Tax Cost Ratio measures how much a fund’s annualized return is reduced by the taxes investors pay on distributions. For example, if a fund had a 2% tax cost ratio for the three-year time period, it means that on average each year, investors in that fund lost 2% of their assets to taxes.

Passive wins once again.

BEWARE OF ELECTRONIC CARD SKIMMERS AT ATMS

A last minute tip from my friend Alex:

Click here to view video.

Hope you enjoyed this issue, and I look forward to “seeing you” again in a couple months.

 

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

Check out the link below for Harold’s previous NewsLetters:

NewsLetter Vol. 11, No. 5 – September 2018

NewsLetter Vol. 11, No. 4 – August 2018

 

www.EK-FF.com