Month: December 2017

The 61% Syndrome

© Can Stock Photo / phildate

A few weeks ago we studied a report from a large institution. It stated that 61% of baby boomers preferred minimizing taxes to getting higher investment returns1. We wrote about this being a false choice: the rational object is to achieve the highest after-tax returns, thereby incorporating both goals sensibly.

But there is another problem with the 61% syndrome. There is a tendency for 100% of the attention to get focused on the 61%. It seems that the number is eventually forgotten. The formula is simplified to “The top priority of baby boomers is minimizing taxes.”

In other contexts, ugly words are used to describe the process of attributing perceived characteristics of a group to each individual in the group. Stereotyping and bigotry are costly to society to the extent that they hinder any of us from unlocking the highest fraction of our own potential, the secret sauce of American prosperity.

The forgotten 39% of baby boomers is 29 million people2. That is a lot of people to ignore.

We hear again and again that investors repeatedly do the wrong thing. But we don’t care whether most investors behave rationally; we just need you to do so. (In fact, when others behave foolishly that can create opportunities for us.)

It seems sort of insulting to start a relationship by attempting to prove to people that they will do stupid things and are incapable of learning. But when you attribute a perceived characteristic to every member of a group, you fail them in some way.

You may be familiar with Thoreau’s formulation: “If a man does not keep pace with his companions, perhaps it is because he hears a different drummer…” Many of you have seen the hand-lettered illuminated version of it hanging on my office wall. We are all about people as individuals, not stereotypes.

(Did you know my girlfriend lettered that saying and gave it to me when we were both seventeen? This has been fundamental for as long as I can remember. Extra credit question: what was the girl’s name?)

My unique story gives me respect for you and your unique story. It is how we aim to avoid the 61% syndrome and its related costs and lost opportunities. Clients, if you have questions about this or any other topic, please email us or call.

12016 U.S. Trust Insights on Wealth and Worth survey, U.S. Trust Bank of America Private Wealth Management

2Federal Reserve Economic Data, Federal Reserve Bank of St. Louis


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

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

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

The Model Prisoner

© Can Stock Photo / 4774344sean

Model students do all their homework and get top grades. A role model is someone to look up to. Model prisoners earn time off for good behavior.

Model portfolios are a whole different thing.

Model portfolios are the predominant method of managing wealth these days. There is an understandable reason: they can be profitable for the financial firm. Simple to operate, standardized, easy to talk about–and the pie charts look great on paper.

Out in the real world, models have a glaring flaw. Typically, every client in the model owns the same thing—no differences. But there are valid reasons why people with the same investment objective might have portfolios that vary one from another.

For example, our midwestern clients often want to follow the “Oracle of Omaha.” People everywhere would like to own a piece of the hometown company that does well.

A larger source of variation arises from investment ‘holds.’ Think of shares in a leading, well-run company that was trading at an attractive low price years ago. Once purchased, it may make sense to be a percentage owner for the long haul. But after it goes up in value, it is not the bargain it once was, and new clients find better bargains elsewhere.

Or clients may come to us with long-held stocks purchased at low cost many years before. Income taxes would be a problem if they were all sold at once.

These factors and more create valid, useful variations in client portfolios. When we began to build our systems and processes to tailor portfolios to each client, we quickly realized that model portfolios would only be good for us, not you (our opinion). That isn’t how we conduct business.

At 228 Main our research drives the development of rules-based trading protocols that we can effectively apply across client portfolios. Our systems accommodate the concept of the investment ‘hold,’ and your specific instructions about specific holdings. Our rules-based trading helps us aim for the efficiency of models without the drawback of mass standardization, regardless of your circumstances.

Two things help us immensely. You and we seem to be on the same page with how we think about investing—we are a tight group. And the mutual trust is key: you trust us to make the most of whatever is going on; we trust you to persevere.

Clients, if you would like to discuss this or any other pertinent topic in more detail, please email us or 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. All performance referenced is historical and is no guarantee of future results.

Stock investing involves risk including loss of principal.

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