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!

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Rout_05

Rout_06

Rout_07

Rout_08

Rout_14

Rout_15

Rout_16

Rout_17

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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.”

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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!

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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:

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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.

 10-2018_Top 5 States-01

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:

10-2018_There is a difference_02

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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10-2018_It's Been a Few Good Months_05

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.

10-2018_It's Been a Few Good Months_06

Receiving the Committee for the Fiduciary Standard Fiduciary Award from my friend Patti Houlihan.

10-2018_It's Been a Few Good Months_07

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.

10-2018_It's Been a Few Good Months_08

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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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10-2018_$$$$$_12

Click here to read more.

SPEAKING AT THE INSIDERS FORUM IN SAN DIEGO

10-2018_13

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

NewsLetter Vol. 11, No. 5 – September 2018

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Dear Reader:

WHOOPS

Retirement isn’t the sort of thing you can just jump into. Rather, it requires thoughtful planning and a modest amount of basic knowledge. Unfortunately, Americans seem to be sorely lacking in this regard. GOBankingRates recently found that, shockingly, only 2 percent of respondents were able to pass a quiz on basic retirement knowledge.

Click here for full article.

 SOBERING

From the Retirement Income Journal

If no action is taken, Social Security will be able to pay only 75 percent of its promised benefits after 2034. To solve that problem today, the government would have to raise payroll taxes (to about 15 percent from 12.4 percent), cut benefits across the board by 17 percent, or implement some combination of the two. It could also generate more revenue by raising the cap on the amount of earned income—currently the first $128,400—on which the payroll tax is levied.

Click here for full article.

FREE AT LAST!!

CBS News

After more than a century behind bars, the beasts on boxes of animal crackers are roaming free.

Mondelez International, the parent company of Nabisco, has redesigned the packaging of its Barnum’s Animal Crackers after relenting to pressure from People for the Ethical Treatment of Animals

09-2018_Animal Crackers (1)

Click here for full article.

A MUST-READ

If you’re remotely in striking distance of qualifying for Medicare, my partner, Josh Mungavin, has a most excellent reference book. You’ll note the attractive price—$0—as Josh prepared this amazing effort as a public service and simply wants to make it available to as many people as possible.

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Click here to download it now.

THE FIGHT CONTINUES

Posse of top cops from 17 states dresses down SEC, demand same fiduciary standards for broker-dealers and RIAs and cite other ‘egregious’ deficiencies in proposed son of DOL rule

“… the state attorneys general’s remarks carry particular weight because of their regulatory powers and ability to sue the government if the rule falls short of its intended goals. Judging from their comments, they’re mad as hornets at the proposed measure.

The SEC’s proposed rule purports to impose a ‘best interest’ standard on broker-dealers while requiring additional disclosures; however, the proposed rule fails to require broker-dealers to act as fiduciaries for their clients, as is required of investment advisers—meaning retail investors are not assured unbiased advice from all their financial professionals,” the group asserted in a statement.

What’s more, “the proposed rule fails to ban even the most egregious of broker-dealer conflicts, like sales contests, which elevate the broker-dealer’s financial interest above that of the customer.”

Click here to read the full article.

OUCH!

Following up on the theme of retirement health care…

A Couple Retiring in 2018 Would Need an Estimated $280,000 to Cover Health Care Costs in Retirement,  Fidelity® Analysis Shows 

A 65-year-old couple retiring this year will need $280,0001 to cover health care and medical expenses throughout retirement, according to Fidelity Investments’ 16th annual retiree health care cost estimate. This represents a 2 percent increase from 2017 and a 75 percent increase from Fidelity’s first estimate in 2002 of $160,000.

For individuals retiring this year, using the same assumptions and life expectancies used to calculate the estimate for a 65-year-old couple, a male will need $133,000 to cover health care costs in retirement while females will need $147,000, primarily due to the fact that women are expected to live longer than men.

09-2018_Graph on Retirement (3)

Click here for the full article.

OTHERS WITH TROUBLES

Luxury Apartment Sales Plummet in New Your City

Sales of such properties costing $5 million or more fell 31 percent in the first half of the year, pushing sellers to cut asking prices.

Click here for the full article.

SOME SURPRISES

At least for me … 10 Highest-Paid Professions in America

From Investment News

  Median base salary
Software Architect $105,329
Nurse Practitioner $106,962
Software Engineering Manager $107,479
Physician Assistant $108,761
Software Development Manager $108,879
Corporate Counsel $115,580
Enterprise Architect $115,944
Pharmacist $127,120
Pharmacy Manager $146,412
Physician $195,842

Click here for the full article.

RIGHT DIRECTION

Trends in Financial Advisor Compensation from WealthManagement.com

  2004 2018
Fee Only 31% 52%
Commission Only 21% 3%
Combination 10% 28%

NO COMMENT

For Online Daters, Women Peak at 18 While Men Peak at 50, Study Finds. Oy.

From the New York Times

Click here for full article.

WISE WORDS

  • “The wise man, even when he holds his tongue, says more than the fool when he speaks.” Yiddish proverb
  • “What you don’t see with your eyes, don’t invent with your mouth.” Yiddish proverb
  • “A hero is someone who can keep his mouth shut when he is right.” Yiddish proverb
  • “Don’t be so humble—you are not that great.” Golda Meir (1898-1978) to a visiting diplomat
  • “Intellectuals solve problems; geniuses prevent them.” Albert Einstein
  • “You can’t control the wind, but you can adjust your sails.” Yiddish proverb
  • “I’m not afraid of dying—I just don’t want to be there when it happens!” Woody Allen
  • “Not everything that counts can be counted, and not everything that can be counted counts.” Albert Einstein
  • “Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.” Albert Einstein

HOW LONG?

How long will $1 million last you in retirement? Report says it depends on the state

CNBC/USA Today

Mississippi: 25 years, 11 months, 30 days

Oklahoma:    24 years, 8 months, 24 days

Michigan:      24 years, 7 months, 14 days

Arkansas:     24 years, 7 months, 4 days

Alabama:      24 years, 7 months, 4 days

Hawaii:          11 years, 8 months, 20 days

California:     15 years, 5 months, 27 days

New York:    16 years, 3 months, 22 days

Alaska:          16 years, 8 months, 6 days

Maryland:     16 years, 8 months, 29 days

Click here for the full article.

TOO GOOD TO BE TRUE

From Financial Advisor magazine

Five Florida Brokers Sued By SEC In Alleged $1.2B Ponzi Scheme

Five unregistered Florida brokers are in hot water for funneling investors into a $1.2 billion Ponzi scheme. Woodbridge allegedly bilked 8,400 investors out of $1.2 billion in an elaborate Ponzi scheme in which high-pressure sales agents were used to prey on investors, who were told they would be repaid from high rates of interest on loans to third-party borrowers, the SEC said.

In reality, the borrowers were LLCs owned and controlled by Woodbridge’s leadership, according to the SEC, and investor funds were used to pay $64.5 million in commissions to sales agents … the five brokers were among the top revenue producers for Woodbridge, selling more than $243 million of its securities to more than 1,600 retail investors…

The SEC claims that the defendants told investors that the Woodbridge securities were “safe and secure” using various channels of communication. Klager pitched the investments via newspaper ads, while the Kornfelds allegedly solicited investments through seminars and a “conservative” retirement planning class taught via a Florida university and Costa recommended them on a radio program, the SEC said. Robbins allegedly used radio, television and internet marketing.

The moral is true: If it’s too good to be true, it’s not true.

Click here for full article.

HANDY TIP

From The Points Guy (@thepointsguy)

If you travel at all, I hope you have TSA PreCheck. If not, get it—it will save you tons of time and hassle at the security gate. What I didn’t realize is that if for some reason your known traveler number (KTN) doesn’t make it onto your reservation, your ticket may not reflect your qualification for PreCheck.

By streamlining security and cutting down on wait times, the program helps make travel a less stressful experience. However, it only does so when you actually use it, so we strongly encourage you to double-check your frequent flyer accounts and make sure your KTN is saved on your profile

Here’s how to do that for the major airlines in the US once you’ve logged into your account:

Alaska

  • Visit Profile and tier status
  • Click on Traveler profiles
  • Click on Edit my information under International Travel Information
  • Enter your KTN, then click Save

American

  • Click on Your account
  • Click on Information and password
  • Enter your KTN, then click Save

Delta

  • Click on Go to My Delta
  • Click on View my profile
  • Find Basic Info, then click Open
  • Click Edit in the Secure Flight section
  • Enter your KTN, then click Save Changes

JetBlue

  • Click on the TrueBlue icon at the top right
  • Click on Profile
  • Click the pencil icon next to TSA PreCheck
  • Enter your KTN, then click Yes, Update

Southwest

  • Click on My Account
  • Under My Preferences, click Edit
  • Enter your KTN, then click Save

United

  • Click on View account
  • Under Profile, click on Edit Traveler Information
  • Expand the KTN/Pass ID section, enter your KTN, then click Continue 

 

AND ANOTHER HANDY TIP

From my partner Brett

Are you getting a lot of spam email? Instead of clicking “unsubscribe” at the bottom of the email, which tells companies your email is legit and then you get even more spam email, use the Rules feature in Outlook.

  • Click on Rules, Create Rule
  • Go to Advanced Options
  • Click the checkbox that says “with “” in the subject or body” for Step 1
  • Below that, under Step 2, click on the blue link and type in the company name or some unique identifier (be careful not use to a word like JPMorgan or anything else that could inadvertently filter out good emails)
  • Click next and then click the checkbox “move a copy to a specified folder” for Step 1
  • Below that, under Step 2, click on the blue link and select Junk email
  • Click Finish

WORTH READING

Two most excellent articles from one of my favorite practitioner authors, Larry Swedroe, from Advisor Perspective via Bob Veres’ most excellent newsletter.

The Danger in Private Real Estate Investments

“Should clients invest in private deals as an alternative to publicly-traded REITs? Swedroe examines the evidence, in the form of a private investment database compiled by Cambridge Associates. It contains historical performance of more than 2,000 fund managers, more than 7,300 funds, and the gross performance of more than 79,000 investments underlying venture capital, growth equity, buyout, subordinated capital, and private equity energy funds.

The database shows that for the 25-year period ending in 2017, private funds returned 7.6% a year, on average, while comparable REITs returned 10.9%. The private investments were also taking on much more risk, in the form of leverage above 50% of the value of the underlying properties. One research report summarized more than a dozen academic studies across various time periods, and all of them reached the same conclusion: REITs outperformed private deals.”

Click here for full article.

The Problem with Focusing on Expense Ratios

“The evidence is clear that investors are waking up to the fact that, while the past performance of actively managed mutual funds has no value as a predictor of future performanceexpense ratios dolower-cost funds persistently outperform higher-cost ones in the same asset class.

That has led many to choose passive strategies, such as indexing, when implementing investment plans because passive funds tend to have lower expense ratios. Within the broad category of passive investment strategies, index funds and ETFs tend to have the lowest expenses.

Most investors believe that all passively managed funds in the same asset class are virtual substitutes for one another (meaning they hold securities with the same risk/return characteristics). The result is that, when choosing the specific fund to use, their sole focus is on its expense ratio. That can be a mistake for a wide variety of reasons. The first is that expense ratios are not a mutual fund’s only expense.”

Click here for full article.

THERE’S HOPE

From my friend Dianna

At age 23, Tina Fey was working at a YMCA.
At age 23, Oprah was fired from her first reporting job.
At age 24, Stephen King was working as a janitor and living in a trailer.
At age 27, Vincent Van Gogh failed as a missionary and decided to go to art school.
At age 28, J.K. Rowling was a suicidal single parent living on welfare.
At age 30, Harrison Ford was a carpenter.
At age 30, Martha Stewart was a stockbroker.
At age 37, Ang Lee was a stay-at-home-dad working odd jobs.
Julia Child released her first cookbook at age 39, and got her own cooking show at age 51.
Vera Wang failed to make the Olympic figure skating team, didn’t get the editor-in-chief position at Vogue, and designed her first dress at age 40.
Stan Lee didn’t release his first big comic book until he was 40.
Alan Rickman gave up his graphic design career to pursue acting at age 42.
Samuel L. Jackson didn’t get his first movie role until he was 46.
Morgan Freeman landed his first major movie role at age 52.
Kathryn Bigelow only reached international success when she made “The Hurt Locker” at age 57.
Grandma Moses didn’t begin her painting career until age 76.
Louise Bourgeois didn’t become a famous artist until she was 78.
Whatever your dream is, it is not too late to achieve it. You aren’t a failure because you haven’t found fame and fortune by the age of 21. Hell, it’s okay if you don’t even know what your dream is yet. Even if you’re flipping burgers, waiting tables, or answering phones today, you never know where you’ll end up tomorrow.
Never tell yourself you’re too old to make it.
Never tell yourself you missed your chance.
Never tell yourself that you aren’t good enough.
You can do it. Whatever it is. 

FRAMING—80% FAT-FREE SOUNDS MUCH BETTER THAN 20% FAT

From Morningstar’s optimistic review of active manager performance: Active vs. Passive Fund Management: Our Research on Performance

80% Fat-Free

“4 takeaways about active vs. passive fund management from our year-end 2017 report

  • S. stock pickers’ success rate increased sharply in 2017, as 43 percent of active managers categorized in one of the nine segments of the Morningstar Style BoxTMboth survived and outperformed their average passive peer. In 2016, just 26 percent of active managers achieved this feat.
  • The turnaround was most pronounced among small-cap managers. In 2016, the combined success rate of active managers in the small blend, small growth, and small value categories was 29 percent. In 2017, 48 percent of small-cap managers outstripped their average index-tracking counterparts.
  • Value managers saw some of the most meaningful increases in their short-term success rates. Active stock pickers in the large-, mid-, and small-cap value categories experienced year-over-year upticks in their trailing one-year success rates of 15.0, 20.2, and 34.2 percentage points, respectively. “

How I read these statistics:

20% Fat

57 percent of active managers underperformed their average passive peer.

52 percent of small-cap underperformed

For value managers, 85 percent of large-cap, 79.8 percent of mid-cap, and 65.8 percent of small-cap underperformed.

And that was the good news.

“Although 2017 marked a clear near-term improvement in active managers’ success rates, many of their long-term track records leave much to be desired. In general, actively managed funds have failed to survive and beat their benchmarks, especially over longer time horizons.

Click here for the full article.

HARD TO BELIEVE THIS IS REAL

Top Magician—Israel’s Got Talent

Click here to watch.

COSTCO, ANYONE?

18 Kirkland Products You Should Buy at Costco

Tips from Kiplinger

Click here to see the slideshow.

READ BETWEEN THE LINES

Before I start this “story,” I want to emphasize that I am NOT recommending any of the investments discussed below and E&K has not and does not currently invest in any of them.

It’s a very popular theme today to critique mutual funds for being expensive closet indexers (and I agree) and to suggest that a far better solution is to search for managers who have a high “active share,” i.e., a high percentage of a portfolio that differs from the index (I’m a skeptic). What I teach my class is to be agnostic and do your own research. I recently came across a story about the Baron Fifth Avenue Growth Fund that seemed to make the case for such a manager.

The Art of High-Conviction Investing

Financial Advisor

For over seven years, the Baron Fifth Avenue Growth Fund was a fairly typical large-company growth vehicle with a diversified portfolio of over 100 stocks, lots of benchmark index companies, and so-so performance.

That changed pretty quickly when Alex Umansky, who had been a large-cap growth manager at Morgan Stanley for many years, assumed control in November 2011. Within a relatively short time he had whittled the fund down to fewer than 40 carefully chosen stocks and gave the best ideas ample room to run…

“The fund’s old portfolio was structured to guard against volatility,” says the 46-year-old Umansky. “I guard against over-diversification. If you have a portfolio of 100 names, you’re really just providing exposure to an asset class. We’re in the business of finding mispriced securities and adding alpha.”

Click here for full article.

MarketWatch also had a quite glowing story

Opinion: Baron Funds money manager goes all in to beat the stock market

09-2018_Market Watch Text (4)

Click here to read full article.

So I decided to look beyond the “story.”

Simply looking at a comparison of the fund performance to an appropriate investable index (iShares Russell 1000 Growth) since December 2011, when Mr. Umansky took over, didn’t seem to support the argument.

09-2018_Graph (5)

Next, I looked at what I consider to be the real test—risk-adjusted return. The basic measure for that is the Sharpe ratio, a number that according to Investopedia “ … is the average return earned in excess of the risk-free rate per unit of volatility or total risk.” What I found was that although Baron’s return did indeed beat the index by a percent or two, on a risk-adjusted basis, it lagged. Bottom line, Baron’s looks like a fine alternative if you’re looking for a mega large cap actively managed domestic stock fund, but iShares Russell 1000 Growth, at least today, looks a bit better. The moral: research and don’t just read—read between the lines.
09-2018_Volatility Measures (6)

WOULD BE A GOOD START

SEC Chairman Calls for End of Sales Contests

“As the SEC goes over the public comments it received on its proposed Regulation Best Interest and holds roundtables to hear from investors, the commission’s chairman says some of the feedback has ‘resonated’ with him, according to a statement published on the regulator’s website. Namely, Jay Clayton is adamantly opposed to ‘high-pressure, product-based sales contests’ and wants them eliminated entirely, he says in the statement.

‘In these circumstances, I do not believe it is possible for an investment professional to say with credibility that the investment professional is not putting his or her own interests ahead of the interests of the customer,’ he says, referring to the sales contests.”

Click here for full article.

INTERESTING RESULTS

From the ICI Annual Mutual Fund Shareholder Tracking Survey as reported by ThinkAdvisor

09-2018_Tracking Survey(7)

Although 81 percent and 84 percent respectively reported a fund’s investment objective and risk profile were important considerations, only 36 percent said it was very important.

My ranking for Very Important would be:

  • Investment Objective and Risk Profile
  • Performance Compared to an Index
  • Fees and Expenses (already included in the “performance”)
  • Mutual Fund Rating Services wouldn’t even make the list

Click here for full article.

PUNCTUATION IS POWERFUL

From my friend Dianne on Facebook

An English professor wrote these words on the blackboard and asked his students to punctuate it correctly:

“A woman without her man is nothing”

All of the males wrote:

“A woman, without her man, is nothing.”

All the females in the class wrote:

“A woman: without her, man is nothing.”

Punctuation Is Powerful!

FOREWARNED IS FOREARMED

SEC Chairman Jay Clayton’s statement on Cryptocurrencies and Initial Coin Offerings

“The world’s social media platforms and financial markets are abuzz about cryptocurrencies and ‘initial coin offerings’ (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, ‘this time is different.’

The cryptocurrency and ICO markets have grown rapidly. These markets are local, national and international and include an ever-broadening range of products and participants. They also present investors and other market participants with many questions, some new and some old (but in a new form), including, to list just a few:

  • Is the product legal?  Is it subject to regulation, including rules designed to protect investors?  Does the product comply with those rules?
  • Is the offering legal?  Are those offering the product licensed to do so?
  • Are the trading markets fair?  Can prices on those markets be manipulated?  Can I sell when I want to?
  • Are there substantial risks of theft or loss, including from hacking?

The answers to these and other important questions often require an in-depth analysis, and the answers will differ depending on many factors.  This statement provides my general views on the cryptocurrency and ICO markets and is directed principally to two groups:

  • ‘Main Street’ investors, and
  • Market professionals—including, for example, broker-dealers, investment advisers, exchanges, lawyers and accountants—whose actions impact Main Street investors.

Considerations for Main Street Investors

A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.

Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If any person today tells you otherwise, be especially wary.”

Click here for full article.

AND THEN THERE IS MARKET RISK

After the Bitcoin Boom: Hard Lessons for Cryptocurrency Investors

Tony Yoo, a financial analyst in Los Angeles, invested more than $100,000 of his savings last fall. At their lowest point, his holdings dropped almost 70 percent in value. Pete Roberts of Nottingham, England, was one of the many risk-takers who threw their savings into cryptocurrencies when prices were going through the roof last winter. Now, eight months later, the $23,000 he invested in several digital tokens is worth about $4,000, and he is clearheaded about what happened.

“I got too caught up in the fear of missing out and trying to make a quick buck,” he said last week. “The losses have pretty much left me financially ruined.”

Mr. Roberts, 28, has a lot of company. After the latest round of big price drops, many cryptocurrencies have given back all of the enormous gains they experienced last winter. The value of all outstanding digital tokens has fallen by about $600 billion, or 75 percent, since the peak in January, according to data from the website coinmarketcap.com.

Click here for full article.

HEADLINES

From my friend Peter. You can’t make this stuff up.

09-2018_Headlines (8)

IT’S 100 DEGREES IN LUBBOCK BUT IT COULD BE WORSE

As one might expect, the desolate and remote East Antarctic Plateau is home to Earth’s coldest temperatures. What is surprising, however, is that these bitter temps are even colder than previously thought—reaching nearly -148 degrees Fahrenheit (-100 degrees Celsius).

I ALSO LOVE GETTING OLDER

From my friend Judy. Always a good source of interesting tidbits.

  • My goal for 2018 was to lose 10 pounds. Only 15 to go!
  • I ate salad for dinner. Mostly croutons and tomatoes. Really just one big round crouton covered with tomato sauce. And cheese. FINE, it was a pizza. I ate a pizza.
  • I just did a week’s worth of cardio after walking into a spider web.
  • I don’t mean to brag, but I finished my 14-day diet food in 3 hours and 20 minutes.
  • A recent study has found women who carry a little extra weight live longer than men who mention it.
  • Kids today don’t know how easy they have it. When I was young, I had to walk nine feet through shag carpet to change the TV channel.
  • Just remember, once you’re over the hill you begin to pick up speed.

 

NOT SO HUMBLE

Harold Evensky to receive FPA’s highest award

AND

Harold Evensky to receive Frankel Fiduciary Prize

GOOD STUFF

From my friend Alex.

09-2018_Memes (9-A)

09-2018_Memes (9-B)

HOW OLD IS GRANDMA?

09-2018_Grandma(10)

One evening, a grandson was talking to his grandmother about current events. The
grandson asked his grandmother what she thought about the shootings at schools,
the computer age, and just things in general.

The grandmother replied, “Well, let me think a minute.”

  • I was born before:
    • Television
    • Penicillin
    • Polio shots
    • Frozen foods
    • Xerox
    • Contact lenses
    • Frisbees
    • The Pill
  • There were no:
    • Credit cards
    • Laser beams
    • Ballpoint pens
  • Man had not yet invented:
    • Pantyhose
    • Air conditioners
    • Dishwashers
    • Clothes dryers (clothes were hung out to dry in the fresh air)
    • Man hadn’t yet walked on the moon
  • In my day:
    • “Grass” was mowed
    • “Coke” was a cold drink
    • “Pot” was something your mother cooked in
    • “Rock music” was your grandmother’s lullaby
    • “Aids” were helpers in the principal’s office
    • “Chip” meant a piece of wood
    • “Hardware” was found in a hardware store
    • “Software” wasn’t even a word.
  • Until I was 25, I called every man older than me “sir.”
  • And after I turned 25, I still called policemen and every man with a title “sir.”
  • We were before gay rights, computer dating, dual careers, day care centers, and group therapy.
  • Our lives were governed by good judgment and common sense.
  • We were taught to know the difference between right and wrong and to stand up andtake responsibility for our actions.
  • Serving your country was a privilege; living in this country was a bigger privilege.
  • We thought fast-food was what people ate during Lent.
  • Having a meaningful relationship meant getting along with your cousins.
  • Draft dodgers were those who closed front doors as the evening breeze started.
  • Time-sharing meant time the family spent together in the evenings and weekends, notpurchasing condominiums.
  • We never heard of FM radios, tape decks, CDs, electric typewriters, yogurt, or guys wearing earrings.
  • We listened to big bands, Jack Benny, and the president’s speeches on our radios.
  • If you saw anything with “Made in Japan” on it, it was junk.
  • The term “making out” referred to how you did on your school exam.
  • Pizza Hut, McDonald’s, and instant coffee were unheard of.
  • We had 5-and-10-cent stores where you could actually buy things for 5 and 10 cents.
  • Ice cream cones, phone calls, rides on a streetcar, and a Pepsi were all a nickel. And if you didn’t want to splurge, you could spend your nickel on enough stamps tomail one letter and two postcards.
  • You could buy a new Ford Coupe for $600, but who could afford one?Too bad, because gas was 11 cents a gallon.
  • We volunteered to protect our precious country.
  • No wonder people call us “old and confused” and say there is a generation gap.

How old do you think I am? 

Are you ready?

This woman would only have to be  66  years old. All this is true for those of us born any time before late 1952. Gives you something to think about.

Depressing, as I’m lots older.

WHY WE NEED A FIDUCIARY STANDARD

Why Conflicting Retirement Advice is Crushing American Households

From Forbes

It is a well-documented fact that American workers are financially underprepared for retirement. For example, in a recent Government Accountability Office Report that examined the retirement savings of households in the 55 to 64 age group, researchers found that 55% of households had little to no retirement savings. Additionally, the remainder in that range that had saved for retirement saved a median of approximately $104,000. Even with Social Security, it seems the average American worker will have limited financial resources to generate income during retirement.

When you look at the savings data, this shortfall is not a surprise, as the U.S. consistently under-saves its peers. Data sourced from the Organization for Economic Co-operation and Development (OECD) spanning over a decade of savings rates ending in 2008 shows that the U.S. has historically come up short. Canada, France, Germany, Italy, Japan and the U.K. all reported generally better national savings rates during that time period. Although the retirement preparedness of the average American worker is distressingly bad and the savings trends and figures are of great concern, the focus of this article will be on the cost of conflicting advice on retirement preparedness.

The effects and financial impact of conflicting advice on American families is of consequence. In a 2015 report by the Council of Economic Advisers, the authors estimate that “the aggregate annual cost of conflicted advice is about $17 billion each year.” This conflicting advice comes from individuals and institutions that are “compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest.”

Unfortunately for the American family seeking “professional” financial advice, the choices are few. Just a small percentage of financial professionals are able to offer financial advice without facing the conflicts outlined by the Council of Economic Advisers. In a recent article (paywall) penned by Dr. Kent Smetters, he suggests that out of the roughly 285,000 financial advisers in the U.S., few are “fee-only advisers who follow a true fiduciary standard that prohibits commissions on products recommended to clients and legally requires the advisers to always put their clients’ interests first.”

It is challenging at best to determine which advisers, brokers, agents and mutual fund companies are able to act in your best interests as most say they will.

The effects and financial impact of conflicting advice on American families is of consequence. In a 2015 report by the Council of Economic Advisers, the authors estimate that “the aggregate annual cost of conflicted advice is about $17 billion each year.” This conflicting advice comes from individuals and institutions that are “compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest.”

Click here for full article.

WELLS FARGO PUSHED WEALTH ADVISORS TO USE HIGH-FEE PRODUCTS, CROSS-SELL

From Yahoo Finance

For almost two years, Wells Fargo has been under near-constant fire. It all began, of course, with the revelation that employees in bank branches, who faced immense pressure to sell, had opened fake accounts for customers. Then, the bank agreed to pay a $1 billion fine to settle allegations of abuses in its auto lending and mortgage businesses.

In the spring, the bank also disclosed that its board was conducting a review of “certain activities” within the bank’s wealth management unit, which filings describe as including fee calculations of fiduciary accounts.

In mid-July, Yahoo Finance reported on increasing sales pressure in the wealth management sector of Wells’ Private Bank. Late last month, the Wall Street Journal also reported that four Wells Fargo advisors had sent a letter to the Justice Department and the Securities and Exchange Commission, detailing “long-standing problems” in the wealth management business.

In addition, the Journal reported that the broad class of Wells Fargo advisors were encouraged to funnel wealthier clients into the Private Bank’s wealth management area because the fees were higher. A former senior executive in this area and multiple former Wells Fargo brokers expressed that to Yahoo Finance as well.

Click here for full article.

MERRILL LYNCH PAYS $8.9 MILLION TO SETTLE CONFLICT OF INTEREST CHARGES

From Financial Advisor

“Merrill Lynch’s equity research arm has agreed to pay approximately $8.9 million to settle Securities and Exchange Commission charges that it failed to disclose a conflict of interest to more than 1,500 of Merrill’s retail advisory accounts who were sold approximately $575 million in products as a result.

Investors continued to be sold the products managed by a U.S. subsidiary of a foreign multinational bank despite concerning management changes because of the fees the banks paid to be on Merrill’s advisory platforms and its broader financial relationship with the wirehouse, the SEC found.

‘By failing to disclose its own business interests in deciding whether certain products should remain available to investment advisory clients, Merrill Lynch deprived its clients of unbiased financial advice,’ said Marc P. Berger, director of the SEC’s New York Regional Office. ‘Retail clients must feel confident that their advisors are eliminating or disclosing such conflicts and fulfilling their fiduciary duties.’

Merrill’s decision to continuing offering the U.S. subsidiary’s products violated both its due diligence and disclosure policies and violated its own ADV requirements.

According to the order, Merrill put new investments into these products on hold due to pending management changes at the third party. As part of the decision, Merrill’s governance committee planned to vote on a recommendation to terminate the products and offer alternatives to investors.

The third-party manager sought to prevent termination by contacting senior Merrill executives, according to the order, including making an appeal to consider the companies’ broader business relationship.

Following those communications, and in a break from ordinary practices, the governance committee did not vote and chose instead to defer action on termination, the SEC found.”

Click here for full article.

If you’re in doubt regarding the legal relationship you have with an advisor, have them sign the simple mom-and-pop “fiduciary oath” (it doesn’t even have the word “fiduciary” in it). If you’d like a copy, call (305-448-8882) or send an email (david.evensky@ek-ff.com) and we’ll send you one.

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 NewsLetter:

NewsLetter Vol. 11, No. 4 – August 2018

 

www.EK-FF.com

NewsLetter Vol. 11, No. 4 – August 2018

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Dear Reader:

FAST!! 

From USA Today:

200,000 trillion calculations per second: U.S. launches the world’s most powerful supercomputer. Oak Ridge National Laboratory and IBM have successfully built and launched the Summit supercomputer, the world’s most powerful and smartest supercomputer.

The powerful computer is the next step toward a national goal of developing the world’s first fully capable exascale machine by 2021. An exascale computer is one that is capable of making one billion billion calculations per second. The Summit supercomputer has a peak performance of 200,000 trillion calculations per second — or 200 petaflops, making it eight times faster than the Titan Cray X supercomputer that came before it. [My emphasis.]

Oak Ridge National Laboratory director Thomas Zacharia said Summit has already proved itself capable of making exascale calculations in some scientific areas. During its installation, scientists used it to make more than 1.8 quintillion calculations in a single second in bioenergy and human health research. “This is the first time anyone has broken the exascale barrier,” Zacharia said. “Today’s Summit also gives us confidence we can deliver on a fully capable exascale computing resource by the year 2021.”

SCARY

As I wrote in my last NewsLetter, cybercrime is alive and well. Indeed, according to the AICPA, “143 million U.S. consumers were victims of cybercrime in 2017, with losses hitting $19.4 billion. Still, only three in five adults responding to the AICPA survey (61%) said they had ever looked at their credit report. Monitoring your credit is an important step in protecting your finances.” You can request one free report per year from each of the three major credit reporting agencies. The AICPA also recommends checking credit reports associated with your children’s names, even very young children.

From the Federal Trade Commission website:

The three nationwide credit reporting companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report.

To order, visit annualcreditreport.com, call 1-877-322-8228. Or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Do not contact the three nationwide credit reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228 or mailing to Annual Credit Report Request Service.

You may order your reports from each of the three nationwide credit reporting companies at the same time, or you can order your report from each of the companies one at a time. The law allows you to order one free copy of your report from each of the nationwide credit reporting companies every 12 months.

We take cybersecurity VERY seriously, and you should too!

THE SHRINKING MARKET

The New York Times reported on a paper by Ohio State finance professor Rene Stulz that found:

  • In the mid-1990s, there were more than 8,000 publicly traded companies.
  • By 2016 there were only 3,627.
  • Based on the growth of the U.S. population, those numbers represent a reduction from 23 companies/million to 11 in 2016.
  • In 1974, 61.5% of publicly traded companies had assets of less than $100 million (in 2015 dollars). By 2015 that portion was 22.6%

1.The Shrinking Market

 

 

 

 

 

 

 

 

SAD

The New York Times reports on new research that sheds light on the scope of a problem affecting a rapidly growing share of older Americans: “The rate of people 65 and older filing for bankruptcy is three times what it was in 1991, and the same group accounts for a far greater share of all filers.”

 

BE PREPARED

Good advice for everyone, not just Boy Scouts. My friend Mena suggests checking out Ready.gov. “I really like Ready.gov for all their information on storm preparation. They cover everything from hurricanes to wildfires to active shooters and pets. June is Pet Month. Gather some information about it!”

EXCELLENT ADVICE

These five lessons from West Point can make you a better investor—and a better person:

2.Excellent Advice

 

 

 

 

 

 

 

FINANCIAL PORNOGRAPHY

Even professionals engage in nonsensical habits. From wealthmanagement.com:

Active vs. Passive: Halftime Results

Investors who shifted to index-based ETFs and mutual funds have generally been rewarded in the first half of 2018, as most actively managed funds failed to keep up with the cheaper alternatives despite the belief we’re in a “stock picker’s market.”

Comparing performance over a six-month period? Worthless!

BEN’S BROMIDES

In his recent newsletter for professionals (which is always excellent), Michael Kitces invited Ben Coombs, a longtime friend and one of our profession’s founders to contribute a guest column. Ben’s musings included a few thoughts both clients and professionals need to take to heart when planning.

  • No matter how precise your answer or calculation may be, it will be wrong tomorrow; a moment will change everything.
  • You can’t send a rocket to the moon without making midcourse corrections.

In my terms that means ignore the decimal places, and “don’t buy and forget—buy and manage.”

FINANCIAL PORNOGRAPHY, PART 2: ARTICLE OF FAITH

From the New York Times:

Facebook’s stock Plunge Shatters Faith in Tech Companies’ Invincibility

It had become an article of investor faith on Wall Street and in Silicon Valley: Quarter after quarter, year after year, the world’s biggest technology companies would keep raking in new users and ever-higher revenue. And with that, their share prices would continue to march upward, sloughing off any stumbles.

This week, that myth was shattered. And investors responded Thursday by hammering the stock of Facebook, one of the world’s most valuable companies. Shares of the social media giant fell 19 percent, wiping out roughly $120 billion of shareholder wealth, among the largest one-day destruction of market value that a company has ever suffered.

Reminds me of the crazy time of the tech boom that peaked in early 2000, when many pundits were arguing that the only place to invest was in U.S. technology and anyone who didn’t was stupid.

HOT TURNS COLD

If six months is worthless, how about one year? Be wary of chasing whatever’s hot. S&P Dow Jones Indices publishes a SPIVA U.S. Scorecard that’s chock-full of interesting and useful data.

For example, it notes that the U.S. equity market ended 2017 on a strong note with the S&P 500 growing 21.83%. Unfortunately, 63.08% of large-cap managers underperformed their index.

How about those that did beat their benchmark for the year? The following highlights the risk of assuming that a style that beats its benchmark index for one year is likely to continue doing so in the future.

Percentage of U.S. Equity Funds That Outperformed Their Benchmarks

1-YEAR           3-YEARS        5-YEARS        10-YEARS

Mid-Cap Growth Funds              82                     9                      19                        2

Small-Cap Growth Funds           85                   13                      13                       4

Real Estate Funds                        63                   40                      26                     15

 

SOBERING NEWS

From the Wall Street Journal:

 A Generation of Americans Is Entering Old Age the Least Prepared in Decades

Low incomes, paltry savings, high debt burdens, failed insurance—the U.S. is upending decades of progress in securing life’s final chapter

Americans are reaching retirement age in worse financial shape than the prior generation, for the first time since Harry Truman was president.

This cohort should be on the cusp of their golden years. Instead, their median incomes including Social Security and retirement-fund receipts haven’t risen in years, after having increased steadily from the 1950s. 

 TRAGIC

From the Financial Times:

Hamptons property sales slow as caution spreads to the wealthy

3. Tragic

 

 

 

 

 

 

Home sales have slowed down this year in the Hamptons, the Long Island beach communities that serve as a summer playground for the wealthy of New York, bringing the median price below the $1m mark.

 FOOD FOR THOUGHT

Below is my summation of “Investing Lessons from a Top Poker Player,” an article by Larry Swedroe, one of our profession’s most thoughtful practitioners in our profession’s number-one newsletter (Bob Veres’s Advisor Perspective).

A poker player is betting against one opponent, with a good hand and one card remaining to be drawn.  He estimates his odds of winning the hand to be 86%, so he makes a big bet. Ultimately, that last card proves to be the winning one for his opponent, and he loses big. He “learns his lesson” and changes his strategy.

But wait—if he had followed this strategy 100 times, he’d come out ahead 86% of the time. He knew that in 14% of the cards to be drawn, the hand would be lost. Changing his strategy will probably end up losing him money in the long run.

The lesson? You cannot judge a strategy by the results of one or two outcomes—either way. The Amazon executive who owns Amazon stock in a highly concentrated portfolio has enjoyed a great outcome, and draws the lesson that this is a great investment strategy. But executives who tried that strategy at Polaroid, Eastman Kodak, Digital Equipment, Burroughs, and Xerox would have begged to differ. Roughly 80% of the time, a concentrated portfolio is a poor idea.

The same caution applies to value investing. From 2007 to 2017, the value premium—the average annual difference in returns between value stocks and growth stocks—was -2.3%. So we have “learned” that value investing is inferior to growth, right? But over 10-year periods since 1927, value stocks have outperformed growth stocks 86% of the time, just like a poker hand eventually would. Value investing isn’t suddenly a bad idea; we just managed to hit that other 14% that comes along from time to time.

Swedroe says that there are going to be periods when the best strategy loses, and the smartest among us will be the first to notice and switch course. Research has shown that people with the most intelligence and numerical literacy are the ones who tend to make this type of mistake.

 OPTIMISM REIGNS

“Less than two-thirds of workers are confident that they will retire at age 65, and nearly a third of those surveyed plan to continue working in retirement, according to a Transamerica Center for Retirement survey.

Sixty-two percent of baby boomers, the group closest to retirement, believe they can comfortably retire…. ‘Millennials are the most confident, as they have the most time to save,’ says Catherine Collinson, CEO and president of Transamerica Institute and its center for retirement studies. Despite this sense of assurance, only 67% of millennial workers are confident that they will be able to fully retire with a comfortable lifestyle.”

Framing is everything. I read this as “more than two-thirds of retires and 67% of millennials are confident they will be able to retire with a comfortable lifestyle.” I hope they’re right, but I wouldn’t bet on it.

CASH FLOW RESERVE

We’ve been using our “Cash Flow Reserve Strategy” since the early 1980s. Versions are now common throughout the financial services world, so it’s really nice to be recognized as the creators. Check out the mention below from Christine Benz, director of personal finance at Morningstar, in her article “A Midyear Bucket Portfolio Checkup.”

“Before we delve into the Bucket portfolios’ performance, let’s first review what the Bucket approach is designed to do. As pioneered by financial planner Harold Evensky, the Bucket strategy for retirement portfolios centers around an extraordinarily simple premise: By holding enough cash to meet living expenses during periodic weakness in stock or bond holdings—or both—a retiree won’t need to sell fallen holdings. That leaves more of the portfolio in place to recover when the market eventually does.”

 WE’VE COME A LONG WAY!

Notes from David E.:

From March 2005 comes this summary (by John Hallock) of a study, “Forecasting the availability and diversity of global conventional oil supply.” The study was published in the journal Energy.

There is a lot of talk about oil and gasoline these days—and of fear premiums and even the ability of supply to match the pace at which demand is rising.… [The] US Energy Information Administration (EIA) projected that worldwide crude oil production wouldn’t peak until between 2020 and 2030…. Others believe that when conventional oil does actually become harder to find that the market will ensure a transition to alternative fuels—liquified petroleum gas (LPG), tar sands, deep-water oil, etc.…

A growing cadre of researchers, oil industry professionals and even economists are not so sanguine. They believe that the potential to find more oil and produce oil at ever increasing rates is more limited and doubt that either the oil or alternatives will be found in time to avert near-term supply disruptions.

 Now to July 2018, from Bloomberg:

U.S. Is Set to Become World’s Top Oil Producer, Government Says

The U.S. government sees oil production further climbing next year even amid transportation logjams in the country’s most prolific shale play.

The Energy Information Administration sees U.S. crude output averaging 11.8 million barrels a day in 2019, up from its 11.76 million barrel a day estimate in the June outlook.

‘In 2019, EIA forecasts that the United States will average nearly 12 million barrels of crude oil production per day,’ said Linda Capuano, Administrator of the EIA. If the forecast holds, that would make the U.S. the world’s leading producer of crude.

THE DUNNING-KRUGER EFFECT

Here’s an excellent graphic from Nic reminding everyone (particularly investors) to be wary of overconfidence. Remember, all the kids in Lake Woebegone aren’t really above average.

Coined in 1999 by Cornell psychologists David Dunning and Justin Kruger, Wikipedia tells us that “in the field of psychology, the DunningKruger effect is a cognitive bias in which people of low ability have illusory superiority and mistakenly assess their cognitive ability as greater than it is.”

4. The Dunning-Kruger Effect

BACK ON MY SOAPBOX

As usual, I’ll preface this with the caveat that I’m quite biased on the subject of advisor responsibility. The following are excerpts from an op-ed piece by Elizabeth Warren in Financial Advisor regarding the SEC’s proposal to address the broker conflict-of-interest problem.

Your lawyer can’t take money from your opponent to give you bad legal advice. If you’re on Medicare, your doctor can’t take kickbacks from drug manufacturers for prescribing their drugs. But, under current law, your broker-dealer can receive monetary rewards and other perks for recommending certain investment products, even if those products aren’t in your best interest.

The commission should make four main changes:

First, the final rule should make absolutely clear that all financial professionals must act in their clients’ best interest by applying a fiduciary standard to the brokerage industry….

Second, the SEC should explicitly ban the most obvious forms of conflicted advice, like sales contests and quotas that encourage brokers and agents to make bad recommendations….

Third, the SEC shouldn’t rely on disclosure alone to protect customers. A number of studies have shown that disclosure fails to reduce the harm caused by conflicted advice, and brokers have every incentive to make the disclosures as ineffective as possible. A lawyer can’t represent his client’s opponent just because that conflict was disclosed, and the same should be true of a broker.

Finally, the SEC should include a strong enforcement mechanism by allowing investors to sue advisers who scam them. When someone is cheated by their doctor or lawyer, they can go to court. There’s no reason that families shouldn’t have the same option when their life savings are at stake.

Sounds like common sense to me. I couldn’t agree more.

 IT PAINS ME TO SAY THIS…

But sometimes Jim Cramer gives good advice. Check out “Jim Cramer’s Investing Rule 7: No One Made a Dime by Panicking.”

Click Here.

DON’T KNOW IF IT’S TRUE

I barely understand Bitcoin, but if the following is true, it’s sobering.

Ripple CEO Brad Garlinghouse took to the stage at the Stifel Financial 2018 Cross Sector Insight Conference to talk cryptos. “I’ll tell you another story that is underreported, but worth paying attention to. Bitcoin is really controlled by China. There are four miners in China that control over 50% of Bitcoin…

How do we know that China won’t intervene? How many countries want to use a Chinese-controlled currency?”

RARE AGREEMENT

Ken Fisher is often outrageous in his pronouncements, and we’re rarely on the same page, but in his recent rant about the current SEC proposed actions, I believe he’s absolutely on target. Below are a few excerpts from an article on Financial Advisor IQ.

 Ken Fisher Slams SEC Attempt to Tighten Broker Regulation

The founder of RIA giant Fisher Investments has slammed the industry watchdog for its attempts to write a best interest standard for broker-dealers, saying if the SEC wants to better regulate brokers, it should enforce the rules it already has….

“I urge the Commission to begin strictly enforcing the ‘solely incidental’ language in the Advisers Act, like a parent starting to strictly enforce bedtime after a long summer vacation, which for the brokerage industry has lasted for more than two decades,” Fisher says.

HUMBLE

Danny is infinitely humbler than me. I obviously couldn’t resist including this tidbit from s2analytics, “Five Lessons from Daniel Kahneman.”

Be Humble
Kahneman’s research has shown that since we use overconfident, highly emotional logic in making investment decisions, the best approach is often the simplest. Ironically, Kahneman defers to his certified financial planner for portfolio advice, Harold Evensky of Evensky, Brown & Katz in Coral Gables, Florida.

At the beginning of a lecture in Chicago on May 2, after introducing himself as a psychologist and insisting he wasn’t an economist, Kahneman glanced down at Evensky sitting in the first row and quipped nervously, “I’m intimidated by my financial adviser, he knows how little I know.”

A little humility goes a long way in successful investing. You don’t need a Nobel Prize under your belt to discover that.

NICE TRY, AARP

Seen in the AARP.org bulletin: “BID BY AARP TO SAVE ‘FIDUCIARY RULE’ REJECTED—Reg would have forced financial advisors to put clients first.”

TACTLESS THINGS I SAY

My friend Bob Veres highlighted in his most excellent newsletter some thoughts from Allan Roth, an experienced practitioner. A number of them really resonated with me.

  • I’m charging you to tell you I don’t know the future.
  • Is your goal to die the richest person in the graveyard? This is another version of: If you’ve won the game, quit playing. Stop taking significant market risk when you no longer have to.
  • You have a ton of cash, and that is your riskiest asset. Inflation and taxes inevitably erode the value of cash, bit by bit, over decades.
  • If it feels wrong, go for it. People typically want to put their money in whatever asset class has performed well, or take from the asset class that has performed worst. This is backwards.
  • Get real! This means focus on real, after-inflation returns, and after factoring out all the AUM fees, mutual fund expense ratios, etc.

BIG!

From wealthmanagement.com comes this list of the world’s biggest wealth management firms in 2017:

UBS                                            $2.4      Trillion

Morgan Stanley                      $2.2       Trillion

Bank of America                     $2.2      Trillion

Wells Fargo                              $1.9      Trillion

Royal Bank of Canada           $908      Billion

Credit Suisse                            $792      Billion

Citi                                             $530      Billion

J.P. Morgan                              $526      Billion

Goldman Sachs                      $458      Billion

BNP Paribas                           $437      Billion

E&K didn’t make the list. Maybe next year.

BEST STATES TO RETIRE IN

From Kiplinger:

“To help you weigh the pros and cons of each state when it comes to retirement, we ranked all 50 states based on financial factors critical to retirees, including living expenses, tax burdens, health care costs, household incomes, poverty rates and the economic wellness of the state itself. Of course, plenty of other factors figure into this major life decision, from proximity to family to climate preferences. But we’ll leave assessing those personal considerations to you.”

 

Share of                                  Cost of Living              Average Income

Population 65+                        to U.S. Average          for 65+ households

#1  South Dakota               15.2%                                      -4%                              $43,712

#2  Hawaii                          16.1%                                      +87%                           $71,997

#3  Georgia                         12.3%                                      -7%                              $50,607

#4  North Dakota               14.2%                                      +1%                             $46,763

#5  Tennessee                    15.0%                                      -12%                            $47,891

#6  Alabama                       15.3%                                      -13%                            $44,934

#7  Virginia                         13.8%                                      +7%                             $59,869

#8  Florida                           19.1%                                      +1%                             $51,187

#9  New Hampshire          15.9%                                      +18%                           $53,202

#10  Utah                             10.0%                                      +4%                             $53,211

U.S.                                       14.5%                                                                           $53,799

OK

I’m not going to complain about 100 degree weather in Lubbock

5. OK

ABOUT TIME

From wealthmanagement.com: “An increasing number of women are becoming billionaires. In fact, women are joining the three-comma-club at a faster rate than men, according to Wealth-X’s annual billionaire survey.”

SPRUCE UP YOUR GARAGE DOOR

Some ideas from my friend Leon:

6. Spruce up your garage door

SMART, NOT BRILLIANT

In preparing for a seminar I’ll be giving, I came across an interesting article. I believe the “lesson” is as valid today as when the study was done in 2002.

“In researching how wealthy families created their wealth and then how some were able to sustain it while others lost the wealth, we came across the following.

“To create wealth required concentrated risk taking, often magnified through leverage. To sustain it, the better strategy was to diversify and take a diverse portfolio of risks. This was highlighted through a study of the Forbes 400 (a list of the wealthiest individuals in the U.S.) over a 23-year period. Of the 400 on the list at the beginning of the 23-year period, only 50 remained on the list. The principal factor in dropping off the list was that they did not change their approach to risk taking and their concentrated wealth did not keep up with increases in the market. The interesting insight from this study was that any of those original 400 who would have sold their concentrated assets at the beginning of the period, paid taxes, and simply invested in the S&P 500 Index would still be on the list today.”

Source: “Creating a Goal-Based Wealth Allocation Process,” by Ashvin B. Chhabra, Ravindra Koneru, and Lex Zaharoff, Journal of Wealth Management, winter 2008.

MORE SMART, NOT BRILLIANT

This chart is from J.P. Morgan’s most recent Guide to the Markets, a quarterly publication and one of the most valuable publications in the financial services world.

7. More Smart, Not Brilliant.png

Source: J.P. Morgan, Guide to the Markets, 3Q 2018, as of June 30, 2018

IT’S A GLOBAL WORLD

8. It's a Global World.png

WHY DIVERSIFICATION WORKS OVER TIME (EVEN FIVE YEARS)

9. Why Diversification Works Over Time

Source: J.P. Morgan, Guide to the Markets, 3Q 2018, as of June 30, 2018

ONE MORE GURU BITES THE DUST

From the Wall Street Journal:

‘This Is Unbelievable’: A Hedge Fund Star Dims, and Investors Flee

For years, David Einhorn’s investors didn’t seem to mind his unusual ways—the aloofness toward clients, midday naps, unpopular stock picks, late nights on the town. Until the billionaire hedge-fund manager fell into a slump.

After more than a decade of winning on Wall Street, Mr. Einhorn’s Greenlight Capital Inc. has shrunk to about $5.5 billion in assets under management, his investors estimate, from a reported $12 billion in 2014, and his investments are struggling.

AND ONE MORE NAIL

In the hedge fund coffin, this one from the New York Times:

Hedge Funds Should Be Thriving Right Now. They Aren’t.

Highly paid hedge fund managers have complained for years that it’s unfair to compare their performance with the broad stock market during prolonged bullish periods. Hedge funds are designed to mitigate risk, the argument goes, and so investors in them might sacrifice some gains as markets rise while waiting for hedge funds to prove themselves in more challenging times.

Those times would seem to have arrived.

So far this year, stock markets have delivered weak returns, bond markets have turned in negative performances, and everything is much more volatile—just the environment that many hedge funds say they’ve been waiting for….

The results for the first six months are now in—and they shatter the myth of hedge funds thriving in turbulent markets.

Hedge funds, on average, underperformed the Standard & Poor’s 500-stock index yet again. An index of hedge fund performance, calculated by the research firm HFR, gained just 0.81 percent in the first half of 2018. That is less than half of the S. & P. 500’s 1.67 percent gain.

AND SOME INTERESTING (AND IMPRESSIVE) DATA ON EMERGING MARKETS

10. And Some interesting (and impressive) data on emerging markets

J.P. Morgan, Guide to the Markets, 3Q 2018

BUY HIGH, SELL LOW

Notice a pattern?

11. Buy High Sell Low

Source: 2018 Investment Company Fact Book: A Review of Trends and Activities in the Investment Company Industry. Washington, DC: Investment Company Institute. Available at www.icifactbook.org

THE AMAZING BODY

Some tidbits from my friend Leon. Just reading this wore me out. I had to take a nap.

  • Your heart pumps approximately 2,000 gallons of blood through its chambers every single day. It beats more than 100,000 times a day.
  • You take around 17,000 breaths a day on average, and don’t have to think about a single one.
  • Your brain doesn’t stop working. It’s estimated that about 50,000 thoughts pass through it each day on average, although some scientists put the figure closer to 60,000. That is a whopping 35 to 48 thoughts every minute.
  • You blink about 28,800 times every day, with each one lasting just a tenth of a second. You can weigh up any visual scene in just a hundredth of a second.
  • Red blood cells literally shoot around the body, taking less than 60 seconds to complete a full circuit. That means 1,440 trips around your body every day.
  • You shed more than 1 million skin cells every day.
  • Your hair (if you still have any) grows about half a millimeter per day, and the average adult with a full scalp has around 100,000 hairs on their head.
  • The average person will eat over 50 tons of food in his or her lifetime. No wonder I keep gaining weight!
  • And most amazing of all, your body cells are regenerating themselves every single day without any prompting. This means you have an entirely new set of taste buds every 10 days, new nails every six to 10 months, new bones every 10 years, and a new heart every 20 years.

 

BUT THIS SHOULD MAKE YOU FEEL BETTER

Kiplinger’s “Cheaper by the Decade” shows us prices today versus 33 years ago (adjusted for inflation):

                                                1985               2018

Cell Phone                           $  1,495           $    670

Television                             $  1,200           $    160

Computer                             $  2,495           $ 1,099

Nike Air Jordans                 $     152           $    110

Honda Accord LX               $25,343           $24,465

SPEAKING OF MILLENIALS

PGIM Investments, the investment manufacturing and distribution arm of PGIM, the global asset management business of Prudential Financial, has found in its 2018 Retirement Preparedness Survey that a majority of millennials (62%) planned to retire only when they had enough money, but 31% were not saving for retirement at all, as they didn’t see “the point of planning for retirement because anything can happen between now and then.”

As my dad would say, I think they’re cruzin’ for a bruzin’.

WE’VE COME A LONG WAY, PART 2

Courtesy of David:

12. We've Come a Long Way, part 2

NOW THAT’S VOLATILITY!

13. Now That's Volatility

https://www.parametricportfolio.com/blog/argentina-capital-markets-from-hero-to-goat

OVERCONFIDENCE

Wikipedia tells us, “The overconfidence effect is a well-established bias in which a person’s subjective confidence in his or her judgements is reliably greater than the objective accuracy of those judgements, especially when confidence is relatively high.” And from Financial Advisor IQ:

Americans Confident About Their Own Financial Literacy – for No Reason

Americans seem to put a lot of faith in their financial literacy, despite the fact that only around one out of 20 scored in the top bracket on a financial quiz, according to a recent report from the research firm Raddon.

Forty-four percent of Americans believe they’re “extremely” or “very” financially literate, according to a survey of 1,200 U.S. adults 18 and over conducted in the fall of 2017 by Raddon, which is part of Fiserv. But not even half were able to pass a financial quiz, and just 6% were able to get a score of 90 or above on the company’s quiz, Raddon found.

WORKER PRAISE             

14. Worker Praise

Courtesy of Planadvisor.com

Retirement plan participants are clearly happy campers. If you’re eligible and not yet participating, do it now! If you’re in business and do not offer a plan, now’s the time to consider doing so. As we’re advisors to many plans we’re obviously biased in favor of saving through retirement plans.

CHEAT SHEET

If you’re like me, you never can remember who is in which generation. Here’s a good recap and some interesting statistics from the Graphic Sociology blog on the Society Pages site:

15. Cheat Sheet 1

15. Cheat Sheet 2

I JUST LOVE MARKET TIMING

Hope may spring eternal but market timing is a tried-and-true strategy for long-term underperformance. Here’s an example from Jason Zweig’s always excellent Wall Street Journal column “The Intelligent Investor.”

Average returns if an investor had…*

 

Bought and Held the Investment           Traded the Investment

 

Emerging Market Bonds                  6.1%                                                                   4.0%

European Stock                                 2.6%                                                                   -7.8%

 

*Annualized over the 10 years ended March 31, 2018—Morningstar

 

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

 

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 4 – June 2018

 

www.EK-FF.com

NewsLetter Vol. 11, No. 3 – June 2018

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Dear Reader:

 

DEPRESSING IF TRUE

“Medicare to go broke three years earlier than expected, trustees say.

Medicare’s hospital trust fund is expected to run out of money in 2026, three years earlier than previously projected, the program’s trustees said in a new report published this afternoon.

“The more pessimistic outlook is largely due to reduce revenues from payroll and Social Security taxes, and higher payments than expected to hospitals and private Medicare plans last year.

“The solvency report is the first since the repeal of Obamacare’s Independent Payment Advisory Board earlier this year as part of a massive spending agreement in Congress. The panel outside experts was designed to tame excessive Medicare spending growth, but costs never grew fast enough to trigger the controversial board, and no members were ever appointed. Social Security faces depletion in 2034, the program’s trustees also said today. That’s identical to last year’s projection.”

https://www.politico.com/story/2018/06/05/medicare-outlook-2026-625908

 

GOOD NEWS? BAD NEWS?

From my friend and long-term care guru, Bill Dyess.

I don’t know if it’s good news that someone needed LTC this long, but it was certainly good news that their insurance covered them. Here are the largest claims as of 12/31/2017 (and they’re still being paid!)

Male Female
Paid to date $1,592,000 $2,600,000
Years claim has been paid 9 years, 10 months 13 years, 9 months
Initial premium/year $4,474/year $2,600/year
Years paid until claim began 6 years, 6 months 13 years, 9 months

 

PITHY THOUGHT

For market timers….

Think about the few times when there was lots of certainty—2000 or 2009. How did that work out?

 

TEST RESULTS

From my last NewsLetter …

A TEST

John Durand wrote Timing: When to Buy and Sell in Today’s Markets, a classic in active investment management. He also wrote How to Secure Continuous Security Profits in Modern Markets, in which he opined: “As this is written, one of the greatest bull markets in history is in progress. People have been saying for several years that prices and brokers’ loans are too high; yet they go on increasing.… People who deplore the high at which gilt-edged common stocks are now selling apparently fail to grasp the fundamental distinction between investments yielding a fixed income and investments in the equities of growing companies. Nothing short of an industrial depression … can prevent common stock equities in well-managed and favorable circumstanced companies from increasing in value, and hence in market price.” When was his book published?

No winners, but here are ones that came mighty close:

Alan Rosoff ……………… 1928

Richard Lorenz………….  1930

Jewell Davis ………….…  1925

The publication date was September 1929.

The Great Depression started October 29,1929.

TIDBITS FROM AARP

  • Only about 37% of couples share financial decision-making equality. For shame!
  • The average parent thinks allowances should begin at age 10.
  • Approximately 29% of women in dual-income marriages make more money than their spouses; that’s up from 16% in 1981.
  • The “average” family in the top 10% of wealth in the United States receives an inheritance of about $367,000, while families at the median level of wealth report an average of about $16,000.
  • The average payout from the tooth fairy in 2017 was $4.13; in the West, it was $6.
  • About 53% of grandparents contribute to their grandkids’ education, and 23% contribute to health and dental bills.

 

FOREWARNED IS FOREARMED

When markets take a dip, it’s not the end of the world (and if it is, who cares about markets?).

06-2018_Market Downturn

Even better, from our perspective, is that corrections are great buying opportunities.

 

GOOD NEWS, BAD NEWS

While the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2017” stated that “overall economic well-being has improved over the past five years,” that optimistic headline masks a lot of sad news.

“Economic Well-Being. A large majority of individuals report that financially they are doing okay or living comfortably, and overall economic well-being has improved over the past five years.

“Even so, notable differences remain across various subpopulations, including those of race, ethnicity, and educational attainment.”

Furthermore:

“Dealing with Unexpected Expenses. While self-reported financial preparedness has improved substantially over the past five years, a sizeable share of adults nonetheless say that they would struggle with a modest unexpected expense.

“• Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money. This is an improvement from half of adults in 2013 being ill-prepared for such an expense.

“• Over one-fifth of adults are not able to pay all of their current month’s bills in full.

“• Over one-fourth of adults skipped necessary medical care in 2017 due to being unable to afford the cost.”

https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf

 

PHEW!

Good thing I went to college a zillion years ago. Here are the statistics for Cornell’s Class of 2022:

Applicants     –           51,000+ (a record high)

Admit rate      –           10.3%    (an all-time low)

Admitted        –           5,288

 

SAD BUT TRUE

Cyberattacks are a reality of life today, and we take the risk very seriously.

2.9% of advisors have faced successful attacks on their firm (not us).

44% of firms with more than one employee require mandatory cybersecurity training (we do).

81% of advisors believe addressing cybersecurity is high or very high on their priority list (we believe it’s very high).

 

IF YOU HAVEN’T SEEN THIS

New York Times

“Hoping to thwart a sophisticated malware system linked to Russia that has infected hundreds of thousands of internet routers, the F.B.I. has made an urgent request to anybody with one of the devices: Turn it off, and then turn it back on.

“The malware is capable of blocking web traffic, collecting information that passes through home and office routers, and disabling the devices entirely, the bureau announced on Friday.”

https://www.ic3.gov/media/2018/180525.aspx

 

TULIPS

As I wrote in my last NewsLetter:

Here’s what Crypto pioneer Mike Novogratz said on Monday on CNBC’s “Fast Money” (12/11/17).

“This is going to be the biggest bubble of our lifetimes.” Which, of course, does not stop him from investing hundreds of millions in the space. While conceding that cryptos are the biggest bubble ever … “Bitcoin could be at $40,000 at the end of 2018. It easily could.” Then, of course, it may not.

Turns out, so far, it’s “not.”

06-2018_Bitcoin USD Price

 

GOOD ADVICE

Also from AARP, an excellent article (as always) by Jean Chatzky: “Planning for the Worst.” Why disability insurance may be a must-have for you and this article is must-have reading for my younger readers.

https://www.aarp.org/work/working-at-50-plus/info-2018/disability-insurance-chatzky.html

 

DISMAL

“Dismal Outlook for Millennials” was the headline in a planadviser article. Why?

67% 66% 47%
Feel they will outlive their savings Have no retirement savings Think they will be unable to retire when they would like to

And, to my amazement,

Only 34% Only 21%
Participate in a retirement plan Are worried about their retirement security

 

THE ANSWER IS “BECOME A CEO”

“Income inequality in the United States has increased significantly since the 1970s, after several decades of stability….”

Wikipedia

The New York Times ran an interesting, albeit depressing, story highlighting this issue:

“Want to Make Money Like a CEO? Work 275 years.

“This year, publicly traded corporations in the United States had to begin revealing their pay ratios—comparisons between the pay of their chief executive and the median compensation of other employees at the company. The results were predictably striking.”

Examples included:

CEO Median Employee Years to Earn
Walmart $22.2 million $19,177 More than 1,000
Live Nation $70.6 million $24,406 2,893
Time Warner $49 million $75,217 651

 

https://www.nytimes.com/2018/05/25/business/highest-paid-ceos-2017.html?emc=edit_nn_20180525&auth=login-email

 

 WHY WE NEED A FIDUCIARY STANDARD

From the Wall Street Journal:

https://www.wsj.com/articles/wells-fargos-401-k-practices-probed-by-labor-department-1524757138

“Wells Fargo’s 401(k) Practices Probed by Labor Department
“Department is examining if bank pushed participants in low-cost 401(k) plans into more expensive IRAs

“The Labor Department is examining whether Wells Fargo & Co. has been pushing participants in low-cost corporate 401(k) plans to roll their holdings into more expensive individual retirement accounts at the bank, according to a person familiar with the inquiry.

“Labor Department investigators also are interested in whether Wells Fargo’s retirement-plan services unit pressed account holders to buy in-house funds, generating more revenue to the bank, the person said.”

It’s important to note that at this stage, it’s just a “probe,” but it’s no secret that these actions are common throughout the financial services world. If you’re responsible for a 401(k) plan, be sure your advisor is a 3(38), not a 3(21), fiduciary.

From the National Institute of Pension Administrators: “A 3(21) investment fiduciary is a paid professional who provides investment recommendations to the plan sponsor/trustee. The plan sponsor/trustee retains ultimate decision-making authority for the investments and may accept or reject the recommendations. Both share the fiduciary responsibility. By properly appointing a monitoring an authorized 3(38) investment manager, a plan sponsor/trustee is relieved of all fiduciary responsibility for the investment decisions made by the investment professional.”

 

WE HAVE A LONG WAY TO GO

“The Securities and Exchange Commission’s enforcement strategy to protect retail investors resulted in the return of a record $1.07 billion to harmed investors in 2017, SEC officials said Tuesday.”

Financial Advisor.

 

“JPMORGAN TO REMOVE SOME FIDUCIARY RULE HANDCUFFS, OTHERS MAY FOLLOW”

“JPMorgan Chase & Co. is telling its brokers and private bankers to prepare for changes to its retirement account policies and products in preparation for the likely repeal of the Department of Labor’s fiduciary rule next week.

“The message, sent in emails from bank executives to advisors at J.P. Morgan Securities, Chase Wealth Management and Chase Private Bank on Wednesday, signals that Wall Street firms are poised to move quickly to reverse restrictions that they imposed to comply with the conflict-of-interest rule that took partial effect last June.”

 

ONE MORE TIME

As I continue to beat the fiduciary drum continually, what can I say? It’s REALLY important. So, below is an excerpt from an interview with Phyllis Borzi in my friend Christopher Carosa’s FiduciaryNews.

FN: Now to the present. It looks like the Conflict-of-Interest Rule has not survived its court challenge and that the current administration seeks to, in essence, rewrite it. Still, the impact of the Rule remains. The term “fiduciary” – in part thanks to your efforts, in part thanks to John Oliver – has been elevated in the minds of the investing public. What aspects of the Conflict-of-Interest Rule are now “baked into the cake” of the retirement industry and would be hard to reverse, formal regulation or not?

Borzi: It’s probably too early to tell. But one of the lasting legacies of the DOL conflict-of-interest rules is in the greater public understanding of the need to seek an advisor who is willing to agree in writing to be a fiduciary. Unfortunately, most consumers are not yet at the point where they can tell for sure whether someone who assures them they are acting in their best interest (and thus using that term as a marketing slogan) is genuinely accepting legal liability as a fiduciary. That’s why consumers must get that acknowledgement of fiduciary status in writing and not simply accept the representations of individuals purporting to be acting in their interest.”

That’s why getting the Committee for the Fiduciary Standard’s oath (http://www.thefiduciarystandard.org/wp-content/uploads/2015/02/fiduciaryoath_individual.pdf) signed by your advisor is so important.

You can read the full transcript of the FiduciaryNews interview here:

http://fiduciarynews.com/2018/05/exclusive-interview-phyllis-borzi-says-original-fiduciary-5-part-test-left-plan-sponsors-holding-the-bag/?utm_source=BenefitsPro&utm_medium=IsthePerfectFiduciaryRuleEvenPossible&utm_campaign=051718z&ct=t(EMAIL_CAMPAIGN_5_15_2018)

 

ROBO PLANNING

The hot story in the planning world is Robo-Advisors: i.e., planning based on computer algorithms. I just heard a quote from an MIT AgeLab presentation that captures my thoughts:

“My life is not an algorithm; my life is a story.”

 

PRINCIPLES

Of course, when discussing fiduciary concepts, it’s important to consider principles, so I thought I’d share the story of “A Man of Principles” from my friend Phil.

“In 1952, Armon M. Sweat, Jr., a member of the Texas House of
Representatives, was asked about his position on whiskey. What follows
is his exact answer (taken from the Political Archives of Texas):

“‘If you mean whiskey, the devil’s brew, the poison scourge, the bloody
monster that defiles innocence, dethrones reason, destroys the home,
creates misery and poverty, yea, literally takes the bread from the
mouths of little children; if you mean that evil drink that topples
Christian men and women from the pinnacles of righteous and gracious
living into the bottomless pit of degradation, shame, despair,
helplessness, and hopelessness, then, my friend, I am opposed to it
with every fiber of my being.’

“‘However, if by whiskey you mean the lubricant of conversation, the
philosophic juice, the elixir of life, the liquid that is consumed
when good fellows get together, that puts a song in their hearts and
the warm glow of contentment in their eyes; if you mean Christmas
cheer, the stimulating sip that puts a little spring in the step of an
elderly gentleman on a frosty morning; if you mean that drink that
enables man to magnify his joy, and to forget life’s great tragedies
and heartbreaks and sorrow; if you mean that drink the sale of which
pours into Texas treasuries untold millions of dollars each year, that
provides tender care for our little crippled children, our blind, our
deaf, our dumb, our pitifully aged and infirm, to build the finest
highways, hospitals, universities, and community colleges in this
nation, then my friend, I am absolutely, unequivocally in favor of it.’

“‘This is my position, and as always, I refuse to compromise on matters
of principle.’”

 

DELAY MAY BE GOOD

If you’ve not yet planned your retirement, the two major contributors to increasing the probability of financial success are delaying retirement and social security. If you have questions, check with us. That’s our forte.

06-2018_How Americans Claim.png

Source: Wealthmanagement.com

 

A GOOD START

https://www.bloomberg.com/news/articles/2018-05-24/carney-and-dudley-urge-banks-to-prepare-for-move-away-from-libor  

“10 Universities with the most billionaire alumni”—a useless but interesting tidbit. Here’s the list:

SCHOOL                               # of Billionaire Alumni

University of Michigan                         26

University of Chicago                           29

University of Southern California       29

Yale                                                         31

Cornell                                                    35

MIT                                                           38

Columbia                                                53

University of Pennsylvania                 64

Stanford                                                  74

Harvard                                                188

 

 

OVERCONFIDENCE

“The overconfidence effect is a well-established biased in which a person’s subjective confidence in his or her judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high.” ~Wikipedia

Overconfidence (e.g., Lake Woebegone, where all the children are above average) is a classic behavioral heuristic and one that often leads to poor investment decisions.

“There’s a Big U.S. Gender Gap in Retirement Investing Confidence Wealth Management

“Sixty percent of college-educated, not-yet-retired men say they’re comfortable managing their investments, compared to 35 percent of women.”

It’s that recognition of reality that makes women generally better investors then men.

 

OLD MEN

Given my current age, I kind of liked this:

One evening the old farmer decided to go down to the pond, as he hadn’t been there for a while.
He grabbed a twenty-liter bucket to bring back some fruit while he was there.

As he neared the pond, he heard voices shouting and laughing with glee. As he came closer, he saw it was a bunch of young women skinny-dipping in his pond. He made the women aware of his presence and they all went to the deep end. One of the women shouted to him, ‘We’re not coming out until you leave!’

The old man frowned, ‘I didn’t come down here to watch you ladies swim naked or make you get out of the pond naked.’

Holding the bucket up he said, ‘I’m here to feed the crocodile….’

Some old men can still think fast.

 

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

 

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 2 – April 2018

 

 

NewsLetter Vol. 11, No. 2 – April 2018

Dear Reader:

GURU’S SECRET
From the Wall Street Journal:

How Pundits Never Get It Wrong: Call a 40% Chance
Talking heads have learned that forecast covers all outcomes; “I just said it was a strong possibility.”

What are the chances that readers will make it to the end of this article? About 40%.

If you do make it, that prediction will look smart. If you don’t, well, we said the odds were against it.

Brilliant!!

SHELF LIFE
Ever wonder if the food you are about to eat is still good? Here is a website that allows you to check if the date on your food means it can be eaten or should be thrown out.

Still Tasty?

BOY, DOES THIS SOUND FAMILIAR
Wisdom from my #1 son:

As I get older, I realize

1. I talk to myself because there are times I need expert advice.
2. I consider “In Style” to be the clothes that still fit.
3. I don’t need anger management—I need people to stop pissing me off.
4. My people skills are just fine. It’s my tolerance for idiots that needs work.
5. The biggest lie I tell myself is, “I don’t need to write that down; I’ll remember it.”
6. I have days when my life is just a tent away from a circus.
7. These days, “on time” is whenever I get there.
8. Even duct tape can’t fix stupid—but it sure does muffle the sound.
9. Wouldn’t it be wonderful if we could put ourselves in the dryer for ten minutes and come out wrinkle-free and three sizes smaller?
10. Lately, I’ve noticed people my age are so much older than me.
11. “Getting lucky” means walking into a room and remembering why I’m there.
12. When I was a child, I thought naptime was punishment. Now it feels like a mini vacation.
13. Some days I have no idea what I’m doing out of bed.
14. I thought growing old would take longer.
15. Aging sure has slowed me down, but it hasn’t shut me up.
16. I still haven’t learned to act my age, and I doubt I’ll live that long.

I wonder if he’s trying to tell me something!

HEAD SCRATCHER
Excerpts from an article in InvestmentNews discussing the possibility of the SEC mandating the appropriate use of titles for financial service practitioners (i.e., sales titles for brokerage representatives and advisor titles for fiduciary advisors):

“We’re hoping that it will play a significant role because it is an action the SEC could take immediately without going through the whole political process,” said Harold Evensky, chairman of Evensky & Katz/Foldes Financial and a member of the Committee on the Fiduciary Standard. “It’s a commonsense, mom-and-pop solution to the issue of distinguishing the relationship between the professional and the client.”

But nothing is ever as simple as it may first appear.

“If you see the two terms side by side, the ultimate effect is to create a pecking order with a competitive advantage,” said Gary Sanders, counsel and vice president of government relations at the National Association of Insurance and Financial Advisors. “It’s not the regulators’ role to give a competitive advantage to one segment of players over another.”

“Competitive advantage”? Letting the public know the difference between a salesman and a fiduciary? For shame! How naive of me. I thought the regulators’ role was to protect the public, not a business model.

REALLY DEPRESSING
From Financial Advisor:

Advisor, Pastor of One of U.S.’s Largest Churches Allegedly Defrauded Elderly
The pastor of one of the nation’s largest Protestant churches defrauded elderly investors of $3.4 million in an investment scheme involving pre–Communist era Chinese bonds, according to a federal indictment.

Kirbyjon Caldwell, senior pastor at Windsor Village United Methodist Church in Houston, orchestrated the scheme with financial planner Gregory Alan Smith of Shreveport, Louisiana, who was permanently barred from the securities industry in 2010 by Finra, according to the U.S. Justice Department and the SEC.

MILLIONS OF MILLIONAIRES
The number of millionaires in the United States climbed to over 11.5 million by the end of 2017! (MarketInsights)

WHERE DO SOME COME FROM?
From Kiplinger’s:

CEO Pay Hits the Stratosphere
Pay for the average large-company CEO has risen 46% since 2009, versus 2.2% for the average worker.

2016: $15.6 million

IMPORTANT LIFE LESSONS
From Christo, a Lubbock friend:

• I never make the same mistake twice. I make it five or six times, just to be sure.
• The secret of enjoying a good wine:
1. Open the bottle and allow it to breathe.
2. If it doesn’t look like it’s breathing, give it mouth to mouth.
• “It’s true, I do sh*t in the woods.” [the bear]
• Dear Optimist, Pessimist, and Realist,
While you three were busy arguing about that glass of water, I drank it!
• Every box of raisins is a tragic tale of grapes that could have been wine.

DON’T FEEL BAD
If you don’t get to play with the “Big Boys” on Wall Street. From Bloomberg Markets via my partner, Lane:

One of John Paulson’s hedge funds has plunged about 70 percent over the past four years, marking a dire stretch for the billionaire plagued with investor redemptions…

The performance marks yet another setback for Paulson, whose claim to fame was his bet a decade ago that the U.S. housing market would collapse. But his Paulson & Co. has failed to keep up such money-making wagers and instead shuttered a fund last year and made wrong-way trades on gold, U.S. banks and drugs stocks.

Investors lost patience. The firm’s assets nosedived from a 2011 peak of $38 billion, when clients contributed about half the capital. Now the firm runs about $9 billion, and roughly 80 percent of that is Paulson’s own money.

Paulson Partners also follows a merger arbitrage strategy, which typically bets that a target company’s shares will climb toward the offer price while the bidder’s will fall. Since the fund started trading in 1994, it has produced a 9 percent annualized return, while the levered version has gained 7.5 percent since its inception in 2003 [as of early January 2018]. Last year the funds lost money on their pharmaceutical stocks, the person said.

By way of comparison (S&P 500)
January 1994–January 2018: 9.8% (dividends reinvested)
January 2003–January 2018: 10.2% (dividends reinvested)

TOOT HIS HORN
From AARP Bulletin:

The Kentucky Derby doesn’t start until Steve Buttleman blows his bugle call. Mr. Buttleman has been the bugler, playing his 32-inch herald trumpet, at Churchill Downs for 23 years.

FROM MY LITTLE BROTHER
Control Tower Repartee
Tower: “Delta 351, you have traffic at 10 o’clock, 6 miles!”
Delta 351: “Give us another hint! We have digital watches!”

Tower: “TWA 2341, for noise abatement turn right 45 degrees.”
TWA 2341: “Center, we are at 35,000 feet. How much noise can we make up here?”
Tower: “Sir, have you ever heard the noise a 747 makes when it hits a 727?”

A student became lost during a solo cross-country flight. While attempting to locate the aircraft on radar, ATC asked, “What was your last known position?”
Student: “When I was number one for takeoff.”

A DC-10 had come in a little hot and thus had an exceedingly long roll-out after touching down.
San Jose Tower Noted: “American 751, make a hard right turn at the end of the runway, if you are able. If you are not able, take the Guadalupe exit off Highway 101, make a right at the lights, and return to the airport.”

Tower: “Eastern 702, cleared for takeoff, contact Departure on frequency 124.7.”
Eastern 702: “Tower, Eastern 702 switching to Departure. By the way, after we lifted off we saw some kind of dead animal on the far end of the runway.”
Tower: “Continental 635, cleared for takeoff behind Eastern 702, contact Departure on frequency 124.7. Did you copy that report from Eastern 702?”
Continental 635: “Continental 635, cleared for takeoff, roger; and yes, we copied Eastern. We’ve already notified our caterers.”

One day, the pilot of a Cherokee 180 was told by the tower to hold short of the active runway while a DC-8 landed. The DC-8 landed, rolled out, turned around, and taxied back past the Cherokee. Some quick-witted comedian in the DC-8 crew got on the radio and said, “What a cute little plane. Did you make it all by yourself?”
The Cherokee pilot, not about to let the insult go by, came back with a real zinger: “I made it out of DC-8 parts. Another landing like yours and I’ll have enough parts for another one.”

The German air controllers at Frankfurt Airport are renowned as a short-tempered lot. They not only expect one to know one’s gate parking location but how to get there without any assistance from them. So it was with some amusement that we (a Pan Am 747) listened to the following exchange between Frankfurt ground control and a British Airways 747, call sign Speedbird 206.
Speedbird 206: “Frankfurt, Speedbird 206! Clear of active runway.”
Ground: “Speedbird 206. Taxi to gate Alpha One-Seven.”
The BA 747 pulled onto the main taxiway and slowed to a stop.
Ground: “Speedbird, do you not know where you are going?”
Speedbird 206: “Stand by, Ground, I’m looking up our gate location now.”
Ground (with quite arrogant impatience): “Speedbird 206, have you not been to Frankfurt before?”
Speedbird 206 (coolly): “Yes, twice in 1944, but it was dark—and I didn’t land.”

SAD BUT TRUE
Excerpts from The Death of the Fiduciary Rule Is Bad News for Your Retirement.

The Fiduciary Rule is one step closer to death, and that means it’s once again A-ok for your retirement planner to scam you.
I’m sure they’d take issue with the phrasing, but effectively it’s what they’re doing. For many financial planners, there’s no requirement that the advice they give you is in your best interest—it only needs to meet a “suitability” standard. Instead, they can suggest products and funds that give them a kickback, even if the products don’t perform as well as others or have higher fees attached to them. In fact, the White House Council of Economic Advisers found that non-fiduciaries cost retirement investors (AKA you and me) $17 billion per year.
Do you know who does have to work in your best interest? Fiduciaries. There are plenty of them out there—you can search for one here—and these advisors pledge to do what’s best for you, their client. Certified Financial Planners (CFPs) and Registered Investment Advisors (RIAs) are fiduciaries, for example. They don’t get kickbacks from certain products, and they don’t tack on extra fees. Instead they help you make a financial plan that works for you….
The Fiduciary Rule, crafted by the Obama Administration, would have required that all financial professionals (like brokers and insurance agents) to adhere to the “fiduciary” standard—meaning they’d have to work in your best interest if they were advising you on your retirement investments. Simply, they would have had to put your needs before theirs.
Naturally, the financial industry was not happy. How could they continue to turn such enormous profits if they’re not able to scam the average investor out of his or her retirement savings?
… a federal appeals court ruled that the Department of Labor overstepped its authority when it wrote the rule. The opinion did say that Congress or another “appropriate” state or federal regulator could act to institute it, though…that isn’t going to happen anytime soon.
Who else is held to a fiduciary duty? Lawyers are a typical example. Would we all be fine with some lawyers breaching client-attorney privilege or cutting a deal with the defense to receive a portion of their client’s payout on the backend, if they charged the client slightly less upfront? No?
So what can you do? Well, of course be aware that this is happening. If it’s possible, hire a “fee-only” planner to advise you on your investments. And lobby your state government to institute its own version of the Fiduciary Rule. And maybe get a little riled up about it.
You might also ask your financial advisor to sign the Committee for the Fiduciary Standards Oath (http://www.thefiduciarystandard.org/fiduciary-oath/). At least then you’ll know your advisor is committed to your best interest. If they refuse? Consider a change.

HANDY TO KNOW
Also from Kiplinger’s:

When It’s Safe to Shed Your Tax Records
In most cases, the IRS has three years after the due date of your return (or the date you file it) to do an audit. You should keep some records even longer than that, and it’s a good idea to hold on to your tax returns indefinitely.

Three Years—W-2s, 1099s, 1098s, cancelled checks, and receipts for charitable contributions. Records relating to HSAs and 529 Plans. Contributions to tax-deductible retirement accounts.

Six Years—Receipts for business income and expenses, if you’re self-employed.

THIS IS VERY COOL!
The U.S. Postal Service has a new service called “Informed Delivery.” It provides a picture of the exterior, address side of letter-sized mailpieces and tracks packages that are scheduled to arrive soon! You can also check back for the prior week. Sign up for free at https://informeddelivery.usps.com/box/pages/intro/start.action.
LITTLE HAROLD
From my friend Ron:

04-2018_Little Harold

A new teacher was trying to make use of her psychology courses. She started her class by saying, “Everyone who thinks they’re stupid, stand up!” After a few seconds, Little Harold stood up. The teacher said, “Do you think you’re stupid, Harold?”

“No, ma’am, but I hate to see you standing there all by yourself!”

Harold watched, fascinated, as his mother smoothed cold cream on her face. “Why do you do that, Mommy?” he asked.

“To make myself beautiful,” said his mother, who then began removing the cream with a tissue.

“What’s the matter?” asked Harold. “Giving up?”

Harold’s kindergarten class was on a field trip to their local police station where they saw pictures tacked to a bulletin board of the ten most wanted criminals. One of the youngsters pointed to a picture and asked if it really was the photo of a wanted person. “Yes,” said the policeman. “The detectives want very badly to capture him.”

Harold asked, “Why didn’t you keep him when you took his picture?”

The math teacher saw that Harold wasn’t paying attention in class. She called on him and said, “Harold! What are 2 and 4 and 28 and 44?”

Harold quickly replied, “NBC, FOX, ESPN, and the Cartoon Network!”

I like Little Harold.

A TEST
John Durand wrote Timing: When to Buy and Sell in Today’s Markets, a classic in active investment management. He also wrote How to Secure Continuous Security Profits in Modern Markets, in which he opined: “As this is written, one of the greatest bull markets in history is in progress. People have been saying for several years that prices and brokers’ loans are too high; yet they go on increasing.… People who deplore the high at which gilt-edged common stocks are now selling apparently fail to grasp the fundamental distinction between investments yielding a fixed income and investments in the equities of growing companies. Nothing short of an industrial depression … can prevent common stock equities in well-managed and favorable circumstanced companies from increasing in value, and hence in market price.” What year was this book published?

Send me an email at hevensky@ek-ff.com with your guess. No fair looking it up on the web. I will publish the names of the first 5 people who guess correctly in my next newsletter.

Hope you enjoyed,

_HRE SIGNATURE

Harold Evensky
Chairman
Evensky & Katz / Foldes Financial Wealth Management

 

Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 1 – February 2018