Month: September 2015

Can You Afford Retirement?

© www.canstockphoto.com / EyeMark

One of the most common reasons why clients seek our services is retirement. And there are many questions involved in the topic: how to determine if you can afford to retire, how to invest in order to be able to retire, how to invest after retirement, how to get a handle on how much it costs to live in retirement. Sometimes people put off planning because there is so much about the future that is unknown, it seems futile. But we can always get an idea of what is likely to happen, and that is the basis for planning.

The first task is to be able to fill in the blank in this sentence: “I think retirement will work out for me, because I will have ______ dollars coming in every month and that will let me live as I planned to.” We believe this is a better approach than using some percentage of pre-retirement income.

We know from working with hundreds of people over the years there is a wide range of actual outlays people in different circumstances spend in retirement. The key factor for you, however, is how much money you will need to do what you want to do. Some people travel, others do more gardening. One takes money, the other saves money. We can help you determine what you will need for your retirement.

The planning process might be vague or uncertain at the beginning, especially if you are seven or ten or more years away from retirement. As the years go by and you get closer, your plans will gain precision. After all it is much easier to predict a year or two ahead than a decade or two ahead. So the best course of action is to get started on a course of action. You can fine-tune your plans as you go along.

The second step is to add up the resources that will help provide income in retirement. These include monthly benefit amounts like Social Security and pensions, as well as lump sum retirement savings in the form of IRA’s or 401(k) or other retirement accounts, and other savings and investments.

Once you have a sense of your retirement income needs and resources, we can start in on the arithmetic and projections that will help you understand if you are on track. The next article in this series will cover our methods and philosophy for retirement calculations and investments.

If you would like to discuss your situation in detail, please schedule an in-office meeting or telephone conference. We enjoy the discussion, and never charge for it.

Filling Your Investment Basket

© www.canstockphoto.com / gpointstudio

We believe in investing for the long haul. Regardless of your investment objective, having more money in the future is better than having less money. Our main focus is on maximizing total returns over a long time horizon.

However, sometimes we need to draw down investment assets, and investments tailored for potential long term gains may not be the best place to keep money you need soon. Planting grain will grow you more grain in the long run, but having seeds in the ground does you no good if you need grain to eat right now. So while we like investing for total return potential, sometimes you need a different mix in your basket to work towards your goals.

For immediate money needs, nothing beats cash. You may not see much (if any) growth on cash or equivalents, but it’s always right there if you need it.

If you don’t need money in your hand right away, but still expect to spend a chunk of money by and by, you have the potential to earn a little bit more with short term CDs and investment grade bonds. You can’t spend them on demand, but they have a face amount they’ll pay back in the not too distant future.

Diversified investment portfolios are a step between using lower-risk securities and more volatile holdings like individual stocks because they can include a wide variety of investments. They can potentially capture some market growth, without the same level of volatility presented by investing in only individual stocks.

Our total return philosophy is built around finding the biggest bargains in the investment universe, which sometimes leads us to more aggressive holdings such as individual stocks. These holdings are volatile in comparison and not good places to park money you may need to pull out suddenly.

We know that our preference for total returns does not always fit client goals. These other types of holdings allow us to build a basket that will accommodate your needs. Talk to us if you have any upcoming expenses looming on the horizon and we can help structure your basket to manage your goals.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing.

CD’s are FDIC Insured and offer a fixed rate of return if held to maturity.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Expecting the Expected

© www.canstockphoto.com | trekandshoot

In our quest to make sense of the world, one recurring theme is the potential gap between expectations and reality. We humans do one thing very well: we love to take things too far. Thus we have bubbles, manias, and fads, unrealistic expectations and the Kardashians.

When there is a universal expectation of something, the expectation can be said to be “already in the price.” If the expectation comes to pass, there will be little impact on the market. If reality unfolds differently, however, the market will move.

For example, several years ago when all the Washington news was about the “fiscal cliff,” the country needed Congress to do the right thing to avoid catastrophe. Congress ranks in public estimation somewhere lower than a snake’s belly, so the consensus expectation was for catastrophe. The markets performed poorly as a result.

But as the deadline approached, it seemed evident to us that expectations were SO low, there was very little chance that Congress could perform worse than expected. We expected Congress to produce a catastrophe, and that expectation was “already in the price.” If Congress either did as expected or better, the market might remain steady or go up. Since Congress could hardly do worse than expected, we felt that actual risk was lower than most others perceived.

This understanding enabled us to stay the course amidst great uncertainty, to our benefit.

One of the most-talked about issues today is whether or when the Federal Reserve Board will raise interest rates. We all know that this will happen sooner or later; this knowledge is presumably already in the market. Hence, we see little advantage in fussing over the probabilities.

When something happens that everyone knows was going to happen, there usually is not a big effect on the market. So we spend our time trying to find unexpected opportunities instead of expected problems.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Four Habits for Financial Success

© www.canstockphoto.com | merc67

They say it takes all kinds to make a world, but we’ve noticed four habits that most financially successful people share.

1. Put something away every payday. Researchers were surprised to learn that some top-tier earners end up broke in retirement, and some bottom-rung earners retire with considerable resources. The successful savers tended to have the habit of putting something away every payday. One client told us, “It doesn’t matter how much you make, it matters how much you keep.”

2. Take on sensible debt, and no other kind. The problem with using revolving credit to “make life better” is that revolving credit tends to make life worse. If you carry a credit card bill of $1,000 from month to month, this means that you got to spend $1,000 that you did not have. But it also means that you have $240 less to spend every year in the future until the debt is paid off. By reaching for the illusion that you could spend more, you actually will have less money overall.

3. Nurture and grow your human capital. Your skills, knowledge, habits, training, experience and education are the sources of your human capital. This is your earning power. Some of the most important parts are free: a positive attitude, sound work ethic, and a desire to be of service.

4. Improve your odds of getting where you want to go by spending some time thinking about it. As Yogi Berra once said, “If you don’t know where you are going, you’ll end up someplace else.”

Most of our readers do not need these lessons—you live them. We are writing in hopes of provoking discussions with the younger people in your life, ones who may not know what you know about money and life.

As always, if you would like help with the fine points or want to discuss some aspect of your plans or planning, please call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Data vs. Wisdom

© Can Stock Photo Inc. / kentohIf you are an avid news reader, you are subject to a flood of information about the world. We read about everything from wars to weather, science, scandals, politics and gossip. This adds up to a wealth of data available to an informed investor to make decisions with.

Here’s the problem: most of it is useless. When you see a headline that seems to affect your investment choices, everyone else is seeing the same thing—and is already factoring that news into the stock price, good or bad. The entire vast store of public knowledge is of no use to us when the market condenses and distills all of that data into a single measure: the company’s publicly traded stock price.

Some economists go one step further and say that investment picking is fundamentally useless, because markets are so good at determining the fair price of an asset that it is impossible to find an undervalued asset. This is called the “efficient market hypothesis.”

However, we can see a flaw in this hypothesis: it rests on the assumption that human beings are rational. We’ve already noted that people are irrationally loss averse and prone to exaggerate market swings. When the stock market fell by 50% from June 2008 to March 2009, it wasn’t because half of our collective corporate wealth magically went up in smoke. We were seeing irrational market swings in action.

It is virtually impossible to beat the market using all of the data that goes into the market in the first place. Instead, we believe we can achieve positive results by using simple fundamental principles to avoid irrational stampedes and find undervalued bargains.


Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Why Busts Turn Into Booms (and Vice-Versa)

© Can Stock Photo Inc. / Coprid

We know that the markets are cyclical. They go up-down, up-down.

Listening to the news, you’d never know this. When gas hit $4 a gallon several years ago, headlines said it would go to $7 or more—but instead of doubling, prices fell by half. This shouldn’t be a surprise, especially for those of us old enough to remember the oil crisis of the 1970s. The glut of oil we see today is really just a symptom of the shortage a few years back.

When gas is scarce and prices are high, nobody wants to use any. People drive less, take fewer trips, and buy more efficient cars. At the same time, oil producers start falling over themselves to drill everything in sight. Eventually, the high prices cause demand to shrink and supply to grow.

We know what comes next: oversupply and plummeting prices. Now producers are spending too much money pumping cheap oil and have to close down plants. At the same time, people get used to cheap gas and start burning it freely. Truck and SUV sales go through the roof and people drive more miles. We think we know how this one ends, too.

Every glut plants the seeds of the next shortage, and every shortage plants the seeds of the next glut. We can see this happening in real time with oil and other natural resources such as iron and copper. It holds just as true with every other market in every other age—cattle, corn, and cars, smartphones and other gadgets, even abstract “goods” like movies and music.

Timing is nearly impossible to predict, and investments can be volatile and difficult to own. But by understanding how the process works, patient investors may profit. Today’s bust may be tomorrow’s boom.

Lessons in Letters: The Wisdom of Warren Buffett, Part 1

Downtown Omaha skylineWarren Buffett, the Oracle of Omaha, is a widely acclaimed investor and businessman. He is not perfect and he has been controversial at times. However, to our knowledge Buffett has made more money investing than any other human being on the planet. So he has that going for him, which is nice.

Almost 40 years’ worth of Buffett’s annual shareholder letters are available at www.berkshirehathaway.com. They provide a wealth of information on his views, methods, and insights. Some things from 1977 have gone away, like VHS tapes and KC & The Sunshine Band, but Warren Buffett’s letter for that year contains some timeless insights.

“Most of our large stock positions are going to be held for many years and the scorecard on our investment decisions will be provided by business results over that period, and not by prices on any given day.”

He goes on to write,

“We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.”

Notice that his focus is on the business, not the stock. Buffett did not build his fortune by worrying about short term price swings. He considers his investments in terms of many years, not day to day prices. And he understands that the best way to build wealth for himself and his investors is to buy great companies at bargain prices. For Buffett, falling prices are a buying opportunity rather than a source of pain and anguish.

Buffett’s insight is remarkable in a market dominated by short-term trends—as are his results. There is a lot of wisdom in these words, and we will frequently return to Buffett’s letters as a source of guidance. In the meantime, like Buffett, we continue to seek the best bargains on the market and cultivate our investment “orchard” for long-term growth rather than trying to sell if for short-term reasons.


Investing involves risk including loss of principal. No strategy assures success or protects against loss.