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.
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• 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:

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MOTHER OF ALL SCAMS

From ThinkAdvisor:

Cryptocurrencies are the ‘“mother of all scams,” and blockchain is “the most overhyped—and least useful—technology in human history: In practice it is nothing better than a glorified spreadsheet or database,” Nouriel Roubini, professor of economics at New York University’s Stern School of Business, told senators on Thursday.

Roubini, who famously predicted the 2008 credit and housing bust, testified before the Senate Banking Committee during a hearing on the cryptocurrency and blockchain ecosystem, that the “crypto bloodbath is in full view” and that “the new refuge of the crypto scoundrels is ‘blockchain.’”

Wonder what he really thinks.

To read more click here.

BEN FRANKLIN WHO?

From the Wall Street Journal editorial board via my friend Knut:

Most Americans can’t pass the civics test required of immigrants

These days it’s popular to lament that immigrants are destroying America’s national identity, but maybe we’re getting it backward. When the Woodrow Wilson National Fellowship Foundation recently put questions from the U.S. Citizenship Test to American citizens, only one in three could pass the multiple choice test.

It’s embarrassing. According to the foundation, only 13% of Americans knew when the Constitution was ratified, and 60% didn’t know which countries the United States fought in World War II. Most couldn’t correctly identify the 13 original colonies, which at least is something of a teaser. But only 24% could identify something that Ben Franklin was famous for, and 37% thought it was for inventing the light bulb.

Even with a highly contested Supreme Court nomination now in play in the Senate, 57% of Americans couldn’t say how many Justices are on the Court. Older Americans did much better than younger Americans—only 19% of the under-45 crowd passed—which probably reflects the declining state of American public schools. None of this augurs well for the future of self-government.

We’ve always thought it important that immigrants must pass a test on the basics of American history and civics before they can be sworn in as citizens. Immigrants who are motivated to become citizens will take the time to learn. The real threat to American freedom is the failure of current citizens to learn even the most basic facts about U.S. history and government.

OUCH!

Parents Spend Twice as Much on Adult Kids Than Retirement, Survey Says:

Americans are contributing twice as much to their adult children as they are to retirement, according to a new study.

U.S. parents spend $500 billion annually supporting and giving to their adult children aged 18 to 34, double the amount they contribute each year to their retirement accounts, according to a new study conducted by Merrill Lynch in partnership with Age Wave.

While 79 percent of more than 2,500 American parents surveyed said that they give at least some financial support to their children, two-thirds of American parents report having sacrificed their own financial security for their children.

For full article click here.

A MAP OF EVERY BUILDING IN AMERICA

Quite amazing, but for real. Use two fingers to negotiate.

Click here to view map.

WOW!

From a presentation at Insiders Forum:

  • 1.3 million apps in the iTunes store
  • 323 days of video uploaded to YouTube every minute
  • 1.39 billion people on Facebook, making it the largest country on earth

COOL PARTNERS

Deena and Katie with our good friends Yvonne Racz Key, Artistic Director at Ballet Lubbock, and Maestro David Cho, Music Director of the Lubbock Symphony Orchestra.

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PLAY AND LEARN

A note from Jim about a very useful “game” from the American Academy of Actuaries:

Click here for a link to the Social Security Game. It is a neat calculator that allows anyone to plug in their preferences for solving the SS shortfall. You quickly realize that we can make the system solvent and even increase the benefits. The choices were relatively painless when I first played the game 5 years ago, but they become increasingly difficult each year we delay taking action.

Here’s how the Academy describes the game. “While Social Security isn’t in danger of collapse, changes will be need to be made to pay full retire benefits after 2034. Everyone thinks it’s easy to solve Social Security’s financial problems, but can you? Play the game to explore options for Social Security reform and how changes will affect younger workers, retirees, and the program’s long-term health.”

IT’S BEEN A FEW GOOD MONTHS

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Receiving the Frankel Fiduciary Prize for contributions to the preservation and advancement of fiduciary principles in public life. The prize is named after Professor Tamar Frankel of the Boston University School of Law.

Click here for video.

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.

10-2018_Next Gen_10

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!’”

$$$$$$$$

10-2018_$$$$$_11

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.

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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.

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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

NewsLetter Vol. 11, No. 1 – February 2018

Dear Reader:

DEJA VUE ALL OVER AGAIN?
From a Barron’s article:
“That we are having a major speculative splurge as this is written is obvious to anyone not captured by vacuous optimism.”

“There is here a basic and recurrent process. It comes with rising prices, whether of stocks, real estate, works of art, or anything else. This increase attracts attention and buyers, which produces the further effect of even higher prices. Expectations are thus justified by the very action that sends prices up. The process continues; optimism with the market effect is the order of the day. Prices go up even more.”

Bitcoins anyone?

This was written by economist John Kenneth Galbraith in 1997.

TULIPS
This is going to be interesting. I’m writing this in mid-December, but the NewsLetter will not be going out until around March, so we’ll know more by then how this all shakes out. In the interim…
Have you heard of Tulip Mania? Well, in the early 1600s the price of tulip bulbs reached extraordinarily high levels. According to Wikipedia, at its peak in February 1637, some bulbs sold for more than ten times the annual income of a skilled craftworker. Unfortunately, by May of that year prices had collapsed to close to zero. Until now, Tulip Mania has been the poster child of financial manias. Well, Convoy Investments has created a chart to include the recent Bitcoin price movement just in case we may have a new financial mania king. Of course, even if it is a mania, there may be money to be made if you’re quick enough to hop off the merry-go-round before the bubble pops. Here’s what Crypto pioneer Mike Novogratz said on said 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, he also said, “Bitcoin could be at $40,000 at the end of 2018. It easily could.” Then, of course it may not.

Stay tuned (unless something has already happened).

[As I write this, it’s hovering around $10,000 having bounced back from a low of about $6,000.]

It’s Official: Bitcoin Surpasses “Tulip Mania”, Is Now The Biggest Bubble In World History

02-2018_Rise & Fall of some famous asset bubbles

IT WAS A BUSY YEAR
I know because American Airlines sent me a summary of my travels.

• 90 hours in the sky
• 1.5 times around the world
• 12 destinations

That didn’t even include the trips I took on carriers other than American (e.g., Cape Town).

WHO WOULD HAVE GUESSED?
From David, my #1 son, via the Wall Street Journal:

U.S. Oil Output Expected to Surpass Saudi Arabia, Rivaling Russia for Top Spot

THIS WAS A BIT DIFFERENT
I’ve done a lot of interviews over the years, but this was a bit different. The interview was with “Goldstein on Gelt,” an Israeli radio show. I was certainly in good company as Mr. Goldstein has interviewed every living Nobel Laurent in Economics.

Does Your Financial Planning Account for the Worst-Case Scenario?

FOUR YEARS! THEY MUST BE KIDDING
From Barron’s:

Citigroup Must Pay $11.5 Million Over Ratings Glitches

“In a news release, the regulator says that from February 2011 through December 2015, the Citigroup brokerage unit displayed to brokers, retail customers and supervisors inaccurate research ratings for more than 1,800 equity securities. That’s more than 38% of those covered by the firms’ analysts.
In some cases, the firm displayed the wrong rating for securities its research team covered, saying, for example, that a stock was a “buy” when it really was a “sell.” In other cases, ratings appeared for stocks that CGMI analysts did not in fact rate.”

VERY PROUD!

02-2018_DBK Keynote speaker

 

SMART, NOT BRILLIANT
JP Morgan Guide to the Markets 1Q 2018

02-2018_JP Morgan Guide to the Markets 1Q 2018

AVOID A SEAT THAT DOESN’T RECLINE!
If you fly, be sure to check out SeatGuru (www.seatguru.com). SeatGuru.com is a website that features aircraft seat maps, seat reviews, and a color-coded system to identify superior and substandard airline seats.

ROBOs — DÉJÀ VU ALL OVER AGAIN
July 1, 2016
Automated investment advisor Betterment suspended client trading amid Friday’s market turmoil.

February 6, 2018
The websites of two of the country’s biggest robo-advisers — Wealthfront Inc. and Betterment LLC — crashed on Monday as the S&P 500 Index sank. Complaints quickly spread across Reddit and other Internet sites from people who had trouble logging in to their accounts.

MORE PROUD
In its New Year’s letter, the Coral Gables Community Foundation very graciously highlighted the community efforts of our firm.

02-2018_CGCF Happy New Year

The Evensky & Katz / Foldes Financial Charitable Fund was created by David Evensky, Principal and Chief Marketing Officer of the Evensky & Katz / Foldes Financial firm based in Coral Gables. The Fund serves as the central source of the company’s philanthropic giving in the community.

The Fund is one of the most active and charitable at the Foundation. Evensky & Katz has made a positive difference throughout Coral Gables and Greater Miami by generously donating over $500,000 to a myriad of organizations and causes such as Big Brother Big Sisters of Greater Miami, St. Alban’s Child Enrichment Center, Coral Gables Art Cinema, Miami Children’s Hospital Foundation, Coral Gables Museum and many more.

This year, Evensky & Katz / Foldes Financial hosted the 13th Annual Charity Classic in partnership with the Foundation and the Coral Gables Chamber of Commerce to benefit local non-profit organizations. David Evensky and his team have been generous supporters of the Foundation for many years. Currently, Michael Walsh, a Financial Advisor at the firm, serves on the Community Foundation Board and David served on the Foundation Board from 2008 to 2012.
The Community Foundation commends David, Michael and the entire Evensky & Katz / Foldes Financial team for their commitment to service and philanthropy in our shared community.

I LOVE GURUS
January market predictions for the year end:

Goldman Sachs 2300
Credit Suisse 2300

Market close 12/29/17 2673.61

I’m still looking for the gurus who called the early February volatility; so far, I’ve had no luck.

FOOD FOR THOUGHT
Speaking of gurus, there is an interesting article in the Journal by Mark Hulbert. Mark is the author of the Hulbert Financial Digest that he founded in 1980. The Digest tracks the performance of investment advisory newsletters. It’s now owned by Dow Jones and is published as MarketWatch. In his recent column Mark wrote, “Consider the performance of a hypothetical portfolio that each January invested in the recommendations of the investment newsletter at the top of the previous calendar year’s performance ranking. According to a study by my company, this portfolio created from each year’s winners has lost almost everything [my emphasis] — incurring an 18.0% annual loss since 1991. So $100,000 invested in this portfolio back then would today be worth just $471 today.”
The Year’s Fund Returns Are In. Do They Matter?

BEST JOBS FOR THE FUTURE 2017
From Kiplinger:
10 Best Jobs for the Future
I knew that. I’m pleased Kiplinger does also.

As Americans age and pensions become a thing of the past, the value of good investment advice will only grow. Baby boomers, especially, could need more professional help as they plan for and enter retirement. You usually have to be a college grad to get on this career path. A bachelor’s degree in finance, economics, accounting, or a similar field would best prepare you for dealing with money matters, but most employers don’t specify a required major. Certification from the Certified Financial Planner Board of Standards — which requires you to earn a bachelor’s degree, have at least three years of relevant work experience and pass a rigorous exam on a wide range of financial issues — adds to your credibility. Licensing is required to sell certain types of insurance and investment products.

Personal Financial Adviser
Total number of jobs: 251,715
Projected job growth, 2016-2026: 23.8%
Median annual salary: $86,780
Typical education: Bachelor’s degree

Be sure and tell all your younger children, grandchildren, nieces, and nephews.

SICK WORLD
As my readers know, I’ve long been involved in the fight for a fiduciary duty for anyone providing financial advice. It turns out the battle is getting dirty. Here’s a report from FinancialAdvisor IQ

“A large proportion of comments criticizing the fiduciary rule seem to be fake, an investigation has revealed.
“The Department of Labor’s fiduciary rule purports to require retirement account advisors to put clients’ interests first. While it went into partial effect in June, the rule’s final implementation date, originally scheduled for next month, has been pushed back by 18 months. In the meantime, the DOL has been taking public comments on the rule to help the department understand the rule’s effect on advisors and investors.
“According to analysis by the Wall Street Journal and research firm Mercury Analytics, some 40% of supposed commenters didn’t write posts ascribed to them.
“For instance, Robert Schubert, a salesperson from Devon, Pa., supposedly wrote: “I do not need, do not want and object to any federal interference in my retirement planning.” But he tells the Journal the comment was a fraud and not only did he not post it, but also doesn’t agree with it…”
CLIENTS’ INTEREST FIRST?
Wonder why my friends and I are so passionate about regulators enforcing fiduciary standards?

Excerpts from an Administrative Complaint by the Enforcement Section of the Massachusetts Securities division of the Office of the Secretary of the Commonwealth.

Scottrade, a Massachusetts-registered broker-dealer, has knowingly violated its own internal policies designed to ensure compliance with the United States Department of Labor (DOL) Fiduciary Rule by running a series of sales contests involving retirement account clients…. Prior to the Fiduciary Rule, Scottrade employed a firm-wide culture characterized by aggressive sales practices and incentive-based programs. For example, between December 2015 and April 2017, Scottrade ran a series of call nights and sales contests, in part to drum up additional business in light of an upcoming merger with TD Ameritrade…

Notwithstanding the implementation of certain elements of the Fiduciary Rule on June 9, 2017, Scottrade launched two sales contests between June and September 2017 that ran in violation of its own internal policies designed to ensure compliance with the Fiduciary Rule. Scottrade launched the first of these two contests, the Q3 Win and Retain Sales Contest … on June 5, 2017. The Q3 Sales Contest came on the heels of predecessor sales contests, placed an explicit emphasis on generating net new assets, including retirement assets, and offered $285,000 in cash prizes. Almost immediately after the Q3 Sales Contest ended on July 31, 2017, Scottrade launched the Q4 Dials and Referral Contest … which was nearly identical in scope and structure….

Scottrade encouraged its customers to bring new assets to the firm, while failing to inform them of the conflicts arising from the sales contests. To appraise the performance of its agents, Scottrade frequently circulated internal metrics and rankings during the Q3 and Q4 Sales Contests. Under the Q3 Sales Contest, Scottrade required its agents to achieve a call penetration of at least 80% in order to qualify for particular prizes. Under the Q4 Sales Contest, Scottrade required its agents to make recommendations and referrals to its investment advisory program in order to qualify for particular prizes. These contests could reasonably be expected to cause Scottrade agents to make recommendations in their own best interests rather than the best interests of their customers, including those with retirement accounts.

MERE SALE ACTIVITY
Eugene Scalia, a partner with Gibson Dunn who represents the nine plaintiffs suing the Labor Department over its fiduciary rule, told the U.S. Court of Appeals for the 5th Circuit on Friday that Massachusetts’ action Thursday against Scottrade for allegedly violating the fiduciary rule’s Impartial Conduct Standards is “without merit,” and will spark “private plaintiffs … to exploit the rule to concoct state law claims.”

Scalia said that the Massachusetts’ complaint asserts that “Scottrade has failed to act in good faith to comply with the fiduciary rule,’” and argues that “this gives rise to multiple violations of state law.”
“As Appellants warned …, a fiduciary breach is alleged to have occurred through mere sales activity.” [my emphasis]
Lawyer Fighting DOL Rule Blasts Scottrade Fiduciary Charges
From my friend Ron Rhodes, here’s more on the “mere” sales effort:

The facts are pretty damning. Internal-use materials instructed agents to target a client’s “pain point” and emotional vulnerability and training sessions lauded the use of emotion over logic in getting a client to bring additional assets to the firm. The firm distributed weekly net new assets reports and closely tracked progress during these sales contests. The firm used internal quotas that ranked agents during the contests. The firm frequently used performance metrics to rank the different branches and agents in order to incentivize them to make recommendations to retirement account clients.
One branch manager stated, “This … is honestly the most interested I have ever been in one of our contests. We are going to make a concerted effort to win this thing.” A Divisional Vice President stated in email, “The first week of the Q3 ‘RUN-THE-BASES’ contest is done, and we have a few regions off to a SCREAMING start! You certainly knocked the cover off the ball! Some would say you knocked it out of the park! Very soon, we will get an official count on how we did, and more exciting, a chance to see where we stack-up against our peers on our official scoreboard! […] Happy Selling.”

I’m obviously living in an alternative universe from Mr. Scalia.

SPEAKING OF A SICK WORLD
• Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other. ~Oscar Am ringer, “the Mark Twain of American Socialism”
• I offered my opponents a deal: “if they stop telling lies about me, I will stop telling the truth about them.” ~Adlai Stevenson, campaign speech, 1952
• “A politician is a fellow who will lay down your life for his country.” ~Texas Guinan, nineteenth century American businessman
• “I have come to the conclusion that politics is too serious a matter to be left to the politicians.” ~Charles de Gaulle, French general & politician
• “Instead of giving a politician the keys to the city, it might be better to change the locks.” ~Doug Larson (English middle-distance runner who won gold medals at the 1924 Olympic Games)
• We hang petty thieves and appoint the bigger thieves to public office. ~Aesop, Greek slave & fable author
• “Those who are too smart to engage in politics are punished by being governed by those who are dumber.” ~Plato, ancient Greek Philosopher
• “Politicians are the same all over. They promise to build a bridge even where there is no river.” ~Nikita Khrushchev, Russian Soviet politician
• “Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.” ~John Quinton, American actor/writer

WONDER WHY RETAIL INVESTOR INTEREST COMES LAST?
From InvestmentNews via my friend Skip:
2016-2017 Campaign Contributions

02-2018_2016-2017 Campaign Contributions

ICI, NAIFA, SIFMA, IRI, FSI are all financial service firm organizations
IAA and FPA represent fiduciary-oriented practitioners.

OK, OFF MY SOAP BOX
On to a more positive note, this week, my partner, Katie Salter, who is President of our Lubbock Rotary, arranged for a true American Hero to appear as the lunch speaker, Hershel Woodrow “Woody” Williams. Mr. Williams is a retired United States Marine Corps warrant officer who received the United States military’s highest decoration for valor — the Medal of Honor — for heroism above and beyond the call of duty during the Battle of Iwo Jima in World War II. He and three soldiers are the only living Medal of Honor recipients from that war. In addition, he is the only surviving Marine to have received the Medal of Honor during the Second World War, and is the only surviving Medal of Honor recipient from the Pacific theater of the war. To say his talk was inspiring is a gross understatement. You may recognize his picture as he tossed the coin at the Super Bowl.

02-2018_Hershel Woodrow Williams

ROBOS — DÉJÀ VU ALL OVER AGAIN
July 1, 2016
Automated investment advisor Betterment suspended client trading amid Friday’s market turmoil.

February 6, 2018
The websites of two of the country’s biggest robo-advisers — Wealthfront Inc. and Betterment LLC — crashed on Monday as the S&P 500 Index sank. Complaints quickly spread across Reddit and other Internet sites from people who had trouble logging in to their accounts.

John’s query:
I wonder if they sent robo-calls to comfort their clients?

Hope you enjoyed,

_HRE SIGNATURE.jpg

Harold Evensky
Chairman
Evensky & Katz / Foldes Financial Wealth Management

 

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

NewsLetter Vol. 10, No. 5 – December 2017

NewsLetter Vol. 10, No. 5 – December 2017

Dear Reader:

SCARY
From an article by Paul Lim (one of my favorite columnist) in Money:

“A new survey released this week by Fidelity Investments shows that wealthy young millionaires have staggeringly high expectations for market returns for the coming year. Millionaires who are either millennials (roughly 20 to 36 years old) or Gen X (37 to 52) expect their investment portfolios to return 16.4% next year, according to Fidelity’s 2017 Millionaire Outlook Study.
To put that in perspective, that’s double the historic average annual return for a 60% stock/40% bond portfolio since 1926. What’s more, that’s nine percentage points higher than what older millionaires (specifically, baby boomers) expect to gain next year.”
ON THE OTHER HAND
Bill McNabb, Vanguard’s CEO, quoted in Financial Advisor in late November: “Valuations are starting to get pretty rich,” he says. “You certainly worry about a flash point. A 10 to 15 percent move in equities would not be unprecedented in history from these kinds of valuations. And whether that happens in 6 months, in 12 months, or in 18 months … sooner or later it’s going to happen. To deny that and think some ¬policymakers can navigate things so that we never have another correction again, that won’t happen. The markets need to cleanse.”

WHO KNEW
Ninety percent of Texas wine grapes are grown on the South Plains. Of course, until I moved to the South Plains, I didn’t even know Texas made wine. Turns out there are lots of them.

12-2017_South Plains of Texas

SOMETHING ELSE I DIDN’T KNOW
From FastCompany: 12 Incredibly Useful Things You Didn’t Know Google Maps Could Do
Some of the best features of Google’s mapping app are among the hardest to find — until you know where to look. These are some VERY useful tips.

I’LL BET YOU DIDN’T KNOW
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 North and South America in one foot of water.
• It would take you more than 400 years to spend the 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.
• The entire Denver International Airport is twice the size of Manhattan.
• The number of bourbon barrels in Kentucky outnumbers the state’s population by more than two million. I guess we won’t be running out of bourbon any time soon.

WORTH READING
These excerpts from Thinkadvisor.com’s “Navigating Uncertain Rewards and Certain Risks” by Bob Seawright CIO for Madison Avenue Securities are a bit long, but I thought it was worth devoting the space. The bold highlights are mine.

Equity investing offers uncertain rewards but certain risks, no matter how beautiful the weather or calm the seas. These risks are often opaque to us. There is no way to know if and when those risks will bite and what the extent of the damage will be.

Yet investing in stocks is crucial for investors to reach their financial goals because of the returns they provide. Risk and reward are inherently connected. Suppose, for example, back in 1928 you had invested in stocks (the S&P 500). Bonds (10-year U.S. Treasury notes) and cash (three-month U.S. Treasury bills) and held through the end of 2016.

Over that period stocks averaged 11.4% annual returns, bonds 5.2% and cash 3.5%. In other words, if you had invested $100 in each of those categories, at the end of 2016 you would have had $1,988 in the cash account, $7,110.65 in the bond account and an astounding $326,645.87 in the stock account — over that period stocks earned 165 times more than cash and 46 times more than bonds.

Risk & Returns
Unfortunately, however, that enormous benefit comes with drawbacks of risk. Stocks suffered enormous losses of more than 20% six times between 1928 and 2016, and in 23 of the 89 years — roughly one in four — provided negative returns…

Many people claim to be long-term investors. Very few really are.

Some investors react to drawdown risk by hoping to buy stocks that only go up. Those stocks do not exist. For example, most people would cite Amazon as exactly the type of stock they want to own. A $10,000 investment into Amazon shares purchased at its initial public offering in 1997 is worth roughly $5 million today, far better than market returns.

However, Amazon shares have seen daily declines of 6% or more 199 (!) times, have fallen 15% over a three-day span on 107 different occasions and have suffered at least 20% pullbacks in 16 of its 20 years of public trading. The drawdown risks have been immense….

What to Do?
The best advice most of the time is to accept that drawdown risk is the price paid for the returns stocks provide compared with bonds and cash. Other possible investments, despite the latest financial engineering techniques, cannot measure up in performance either. For example, when analyzed on an asset weighted basis, as Simon Lock has documented, if all the money that has ever been invested in hedge funds had been invested in U.S. Treasury bills instead, the overall results would have been twice as good…

The current long bull market may have lulled investors into a false sense of security, thinking that there are no risks lurking beneath the surface. Smart investors will prepare for inevitable drawdowns before they happen. Reality may bite, but it need not eat you.

SERIOUS FOOD FOR THOUGHT
If you’ve not seen my recent Client Letter on this same subject, drop us a note by clicking here and we’ll send you a copy.

NEW SENIOR’S EXAM
From my friend Leon:
You only need four correct out of ten questions to pass.
1) How long did the Hundred Years’ War last?
2) In which country are Panama hats made?
3) From which animal do we get cat gut?
4) In which month do Russians celebrate the October Revolution?
5) What is a camel’s hair brush made of?
6) The Canary Islands in the Pacific are named after what animal?
7) What was King George VI’s first name?
8) What color is a purple finch?
9) Where are Chinese gooseberries from?
10) What is the color of the black box in a commercial airplane?

Remember, you need only four correct answers to pass.

WHAT I LEARNED FROM AIR FRANCE’S INFLIGHT MAGAZINE
• Although the bicycles of today look nothing like the first machines to bear the name, in 1418, an Italian engineer constructed a human-powered device consisting of four wheels.
• There are 200 million university students worldwide. I’m sure glad my class is limited to twenty.

WHY AIR FRANCE?
Deena and I recently traveled to Cape Town (on Air France) for a speaking engagement and decided if we were going that far (twenty-nine hours and a seven-hour time change), we’d take a few extra days for fun. From that experience, here are two items to add to your bucket list.

• For wine lovers, take a day trip to Stellenbosch, home of some of the world’s great wines. If you do, I’d encourage you to contact Jonathan Snashall at https://www.winetastingtours.co.za/package/tailor-made-tours/.
Jonathan is an international consulting winemaker, spent two years in the European Master of Wine (MW) program, and has been a very keen observer of the Cape wine scene for the last 30 years, spending the last 15 as a winemaker. He was an incredible guide and we could not recommend him more highly.
• Check out the Londolozi Game Preserve. We’d been there about 17 years ago and of all the places we’ve been in the world, the few days there were among the best we’ve ever had. We had the same experience this time around. See the animals up close and personal. Three nights is all it takes to have the experience of a lifetime.
https://www.londolozi.com/en/

12-2017_Safari photos.png

Believe it or not, these are my pictures.

RULE OF LAW
From the ABA Journal — ranking of nations’ adherence to the rule of law (out of 113)

Rank Score U.S. Ranking of Specific Factors Rank Score
Denmark 1 0.89 Constraints of government powers 13 0.81
Germany 7 0.83 Absence of corruption 20 0.73
U.K. 10 0.81 Open government 12 0.78
U.S. 18 0.74 Fundamental rights 21 0.75
France 21 0.72 Order & Security 31 0.8
China 80 0.48 Regulatory enforcement 19 0.71
Russia 92 0.45 Civil justice 28 0.65
Venezuela 113 0.28 Criminal justice 22 0.68

I’M A LITTLE BEHIND THE TIMES
The following is a news report from back in March that my friend Knut recently sent me. It may be a tad old, but it still obviously reflects the feelings of our Security regulators.

From OnWallStreet:
SEC Chief Rips into DOL Fiduciary Rule
The acting SEC chair isn’t mincing words on the Department of Labor’s fiduciary rule. “I have a very nuanced view of the DOL fiduciary duty rule: I think it is a terrible, horrible, no-good, very bad rule. For me that rule was never ever about investor protection,” Chairman Michael Piwowar says. “To me, that rule, it was about one thing and it was about enabling trial lawyers to increase profits.”

I WONDER IF LOBBING HAS ANYTHING TO DO WITH HIS RESPONSE?
Q1- Q3 2017 Lobbying Expenditures — InvestmentNews

 

Pro-Fiduciary Anti-Fiduciary
Financial Planning Association – $30m Insured Retirement Institute – $350m
Consumer Federation of America – $140m Financial Services Institute – $420m
Investment Advisor Association – $125m National Assn of Insurance and Financial Advisors – $1.7m
American Council of Life Insurers – $3m
Investment Company Inst. – $4m
Securities Industry and Financial Markets Assn. – $5.3m
$295,000 $14,770,000

WISE WORDS
• “If past history was all that is needed to play the game of money, the richest people would be librarians.” — Warren Buffett
• “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charles Munger
• “If you are bearish or bullish long enough, you will eventually be right.” — Unknown
• “Your time horizon is not the day you retire — it’s the day you die.” — Mari Adam, Florida planner
• “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, entertainer
• “People who complain about taxes can be divided into two classes: men and women.”
• “In theory, there is no difference between theory and practice. But, in practice, there is.” — Jan LA van de Snepscheut
• “The market is not an accommodating machine.” — Peter Bernstein
• “When the tide goes out, you can tell who’s swimming naked.” — Jimmy Buffet
• “In a bear, market stocks return to their rightful owner.” — Warren Buffet
• When you make a trade, why do you think the other side of the trade is prepared to lose money so you can make money?

DEVELOPED ECONOMIES’ STOCK GAINS PALE BESIDE EMERGING MARKETS’ GDP BOOM
Excerpts from an interesting Wall Street Journal article that my partner Brett shared with me:

There’s something about economic growth and stock markets, across the developed and emerging world, that doesn’t add up. For most of the past decade, the stock markets of developed countries have powered higher even as their economies struggled with sluggish growth. By contrast, emerging-market economies have grown dramatically but their stock markets have been dismal.

“It’s difficult to imagine a very large and persistent disconnect between equity markets and the real economy continuing indefinitely,” said Eswar Prasad, a senior fellow at the Brookings Institution. U.S. stocks have climbed 76% over the past decade, outperforming India’s market by more than 10 percentage points, the Brookings program calculated. Over that same period, however, India’s economy grew 89% vs. just 14% for the U.S. Over the last decade, China’s economy has more than doubled in size while its market has declined 35%.

This observation is true whether focused on the biggest emerging markets, or on all emerging markets collectively. Over the past decade, emerging-market economies have nearly doubled in size, growing at an annualized rate of 6.6%, according to data from the International Monetary Fund. “Things that cannot be sustained will eventually end,” Mr. Prasad said, “and the concern with financial markets is that adjustments happen not gradually, but very rapidly, and in a way that creates turmoil.”

He has no prediction as to when. Markets can move unpredictably for years. But Mr. Prasad said, “ultimately a reckoning for both the economy and financial market will come.”

12-2017_WSJ Graph

ENJOY
A private tour of the Sistine Chapel
Try the different views. I particularly liked the Architectural View.
ANSWERS TO THE QUIZ
1) How long did the Hundred Years’ War last? 116 years
2) In Which country are Panama hats made? Ecuador
3) From which animal do we get cat gut? Sheep and Horses
4) In which month do Russians celebrate the October Revolution? November
5) What is a camel’s hair brush made of? Squirrel fur
6) The Canary Islands in the Pacific are named after what animal? Dogs
7) What was King George VI’s first name? Albert
8) What color is a purple finch? Crimson
9) Where are Chinese gooseberries from? New Zealand
10) What is the color of the black box in a commercial airplane? Orange (of course)
What do you mean, you failed?

Me, too! And if you try to tell me you passed, you is fibbin’

WANT SOME EXCITEMENT? BITCOIN
Let me preface this with the observation that it is absolutely, positively NOT a recommendation. In fact, I still can’t get my head around the concept, but having recently passed $11,000 appreciating nearly 1,000% this year — it’s hard to ignore.

As Barron’s noted, “The market can’t decide if Bitcoin is the next Apple of Flooz.com.” Barron’s went on to remind readers that “Gold’s best year came in 1979, when the precious metal more than doubled in price, to $512 per ounce in the spot market. The rally continued into January 1980, when gold peaked at a nominal price of $850. But it was downhill from there. Gold tumbled 65% over the next five years, and didn’t retouch its 1980 high until 2008. On an inflation-adjusted basis, 1980 remains the high-water mark for gold.”

Whatever the future, we haven’t heard the last of Bitcoin. The Commodity Futures Trading Commission just approved plans by the CME and the Chicago Board of Options Exchange to introduce Bitcoin futures. According to Barron’s, Nasdaq plans to offer its own futures next year and Cantor Fitzgerald will introduce a Bitcoin options product.

I think I’ll stick to a $5 scratch off card.

SOBERING LAST-MINUTE ADDITION
ThinkAdvisor Morning Briefing — Vanguard Issues Its Most Subdued Outlook in a Decade

12-2017_Outlook of Subdued Mkt

MIGHTY PROUD …
… to be the first recipient of the TD Ameritrade Advocacy Leadership Award. I’m the little guy in the middle.

TD Ameritrade Institutional created the TD Ameritrade Advocacy Leadership Award to recognize individuals who have made outstanding contributions to advance the long-term viability, vibrancy, and growth of fiduciary investment advice and the RIAs who provide it.

“We decided it was time to recognize the most vocal and tireless champions of fiduciary investment advice. Harold exemplifies the power that one, dedicated voice can have in rallying an industry to move forward — his prolific body of work makes him a natural as our inaugural award winner,” said Skip Schweiss, managing director of Advisor Advocacy and Industry Affairs for TD Ameritrade Institutional. “TD Ameritrade remains committed to advancing the profession for independent advisors and investors, and we hope that others are as inspired as we are by Harold’s passion for supporting the RIA industry through financial planning, investment advice, writing and teaching.”

12-2017_HRE TD Leadership Award.jpg

Hope you enjoyed,

_HRE SIGNATURE

Harold Evensky
Chairman
Evensky & Katz / Foldes Financial Wealth Management