Month: February 2020

Social and Anti-Social

© Can Stock Photo / deandrobot

The 21st century forms of communication include social media. These venues, like Facebook and Twitter, feature the opportunity for interaction. Comments or replies, likes or favorites, those are the things that put “social” into social media.

Together with our blog site at 228Main.com and the weekly email newsletter, digital communications helped us stay connected with you when life was challenging. I’ll ever be grateful for being in the right place at the right time to use these methods to stay connected.

Social media can be a source of news and information and perspective. Experts in many fields are on Twitter and LinkedIn and Facebook. These are sources we did not have in the olden days.

But there is a dark side to social media. Some use their participation to send negative messages or say hurtful things, or promote stuff that just isn’t worthy of your attention. We’ve heard some say “Twitter is a cesspool” or “There is so much garbage on Facebook.”

The slang term for a person who posts objectionable viewpoints as comments on another’s post is “troll.” It may just be part of human nature, not a unique feature of social media. At the café, barbershop or salon there is also a mix of people with a mix of opinions and varying ways of expressing them.

But objectionable people and posts can be blocked or hidden on social media. Life is too short to pay attention to trolls. Blocking and muting are valuable skills you can use to keep your social media from being a ‘cesspool’ or full of garbage.

Nobody needs to be on social media to get our viewpoints, not with 228Main.com out there and the weekly email newsletter. But if you are on it, you are welcome to connect or follow. There are social media links on the home page of 228Main.com.

Clients, if you would like to talk about this or anything else, please email us or call.

Footwork is Key

canstockphoto701920

A long time ago, a coach told us 80% of success was in the footwork. I can’t remember if it was in reference to playing linebacker, or fielding a baseball, or defending the basket. Certainly, in all those endeavors, one’s position is important.

Add this to the list: how your investments are positioned. Many people have a number of different kinds of accounts, from traditional retirement accounts to Roth IRA’s to regular taxable accounts. Where you own what may make a big difference.

For example, because the gains in Roth IRA accounts will never be taxed even when withdrawn, if the rules are followed, it makes sense to hold the most dynamic investment opportunities inside Roth IRA’s. (Of course, no guarantees – we can’t know the future.) There is little sense in having your most boring investments in your Roth account.

Conversely, investments you might own forever, blue chip stocks for example, might best be owned in taxable accounts. If you don’t sell in your lifetime, you will not owe tax on gains. And heirs get a stepped-up cost basis, a big tax break if there are large unrealized gains.

The key to this idea is managing your investments on a household basis. If you are thinking about the big picture, you do not need to have each individual account be balanced and diversified, nor do you need to make sure you are making transactions in each individual account every year. It could benefit you to have just a few high-potential holdings inside your Roth, and ‘buy and hold’ stocks in your taxable account, as part of a coherent household strategy.

Later in 2020, LPL Financial will start performing investment advisory account supervision on a household basis, rather than an account by account basis. This will make it easier for us to maintain the positioning strategy, with fewer conversations behind the scenes to be sure we can do our best work for you.

Clients, if you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

$3 And $300,000 Things

© Can Stock Photo / Pinkcandy

Having two abodes has given me perspective.

In either home I can sleep well, wake up and fry eggs, go out the door to take a walk, do some work, relax, read, have company for dinner, watch a movie. Both homes keep me warm in the winter, cool in the summer, and dry the year ‘round.

The homes are quite different. One has three times the interior space, twice the number of bedrooms, a much larger garage. A single-family home, it has amenities the smaller duplex lacks. But I am the same person, living pretty much the same life, no matter where I am.

The largest impact is financial. Should I decide to live in one home or the other, my options and outcomes would be quite different depending on the choice.

If the smaller place is sufficient, I could retire tomorrow. My expenses are within range of my current resources, including Social Security benefits. On the other hand, if I chose the larger place, retirement at age 70 might be a possibility – but probably no sooner. If you are keeping score at home, that’s a seven year difference in retirement dates.

(Clients, you know this is theoretical: I am having way too much fun to retire. I intend to work to age 92 no matter where I live.)

There is no prescription about housing for you or me in this story. It only illustrates the consequences of our big decisions. We believe we should invest wisely and spend well, and we each figure out what that means for ourselves.

Meanwhile, the financial press seems to be full of stories hectoring and lecturing people about $3 coffees and other small outlays, as if the key to financial independence is to enjoy no small luxury. We are here to tell you, the $300,000 decisions are the ones to focus on—not the $3 ones.

Clients, if you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Life and Savannah, Georgia

© Can Stock Photo / SeanPavonePhoto

Traveling recently, I had the chance to spend 24 hours in Savannah rather than drive right by. This is a new thing again for me; my life has been too full for side trips most of the last few years.

At best, 24 hours does not even scratch the surface of a city like Savannah. The largest historic district in the country included markets, churches, temples, homes, and mansions. Now it is also home to museums, shops and restaurants.

The unique and beautiful squares or parks, more than twenty, were originally laid out from 1733 to 1801. Many have fountains or statues or otherwise commemorate notables from history. Ancient and stately oaks grace the squares, and indeed the entire city.

The river features shops, entertainment, and dining housed in the centuries-old brick buildings originally used to service a working waterfront.

In preparing for this day, it took some time to understand what all there was to see and do. And then, how to make the most of it? Trolley tours, boat tours, guided walking tours, solo hiking, or some combination?

(I won’t bore you with my decisions; they suited me. Yours would be, or will be, different.)

The task of figuring out how to spend 24 hours in Savannah, Georgia is akin to how we live our lives. When we choose to focus our time and energy, we forsake everything else for a time. And we can never get around to all that the world offers. And the span of our lives in the world is every bit as limited as 24 hours in Savannah.

I did learn that with planning you can see a great deal in Savannah in 24 hours; I am still in the process of learning that with planning you can do a great deal in life.

Clients, if you would like to talk about this or anything else, please email us or call.

Tend and Befriend

© Can Stock Photo / KalengUang

One concept we hear about in the investment and financial planning world is a real downer. This is the idea that evolutionary bias may force us into unwise decisions. Supposedly, our caveman brains are stimulated by ‘fight or flight’ tendencies in the face of uncertainty or danger.

We have always believed we can learn, we are trainable, we can use reason and logic to our advantage. In other words, there is more in our heads than caveman brains. But it still irritates us when we see the implication that we humans are doomed to stupidity by evolution.

We recently read about another supposed product of evolution, a far more optimistic and different instinct.

‘Tend and befriend’ is a concept first outlined by psychologist Shelley Taylor. It refers to the instinct to reach out to those around us, to strengthen our ties to others and to care for them when threats arise. This seems to us to be the opposite of fight or flight, and is a much more helpful concept.

We do not suffer threats from saber tooth tigers anymore, but volatility in the markets, scary headlines, and viral rumors may produce the appearance of threats and danger.

Back in the early part of my career, I envisioned having clients who, if I took care of them, they would take care of me. This evolved into the belief that the better off you are, the better off we will likely be. Now we read about ‘tend and befriend.’ This strikes me as a wonderful way to think about how we strive to work with you.

Clients, if you would like to talk about this or anything else, please email us or call.

S.M.A.R.T. Goals?

© Can Stock Photo / PixelsAway

We’ve all hard about SMART goals, haven’t we? The acronym stands for “Specific, Measurable, Achievable, Relevant, Time-bound.”

Perhaps SMART goals should be balanced with GUT goals: General, Unbounded, Timeless.

SMART goals are all about what we do. GUT goals are all about who we are.

Great thinker James Clear talks says the key to lasting improvement is to change who we believe we are. This is key because we humans are always in the process of becoming who we believe we are. This is a general concept. For example, we might come to believe we are a person who prioritizes exercise.

Compare that to a SMART goal like ‘walk two miles every day.’ Life has a way of getting in the way of our plans; the specific plan to walk might fall to inclement weather, or an upset schedule. But if we believe we are a person who prioritizes exercise, we will usually figure out a way to get exercise despite the disruptions that inevitably pop up.

The SMART goal of walking two miles every day is specific, so involves failure when it is not met. But the GUT goal of becoming a person who prioritizes exercise, being general, does not chalk up a failure when the inevitable lapse occurs.

On another parameter, SMART goals can only be applied to things that are measurable. Many of the most important things cannot be measured. Try to quantify empathy, love, a sunset, or the work of an inspired person. A GUT goal might be about things that cannot be measured. One example, to be present in the presence of others: more empathetic, more attentive, more closely connected to the moment. If we come to believe we are that person, our actions will reflect it.

There are corollaries to personal financial planning. If we believe we are people who put something away every payday, who think twice before committing to large expenditures, who live below our means, who balance long term goals against impulsive spending, then our daily actions may support our key objectives.

Clients, if you would like to talk about this or anything else, please email us or call.

A Structural Reminder

pyramid

The ability to adapt to changing conditions is what sets those who thrive apart from those who merely survive.

Our portfolio theory evolves over time as economic and market conditions unfold. The problem with the textbook approach in a changing world is that a textbook, once printed, never changes. Looking at the world as it is and doing our own thinking, we see things in a new way.

Some time ago, we concluded that counterproductive monetary policies have distorted pricing for bonds and other income-producing investments. By crushing interest rates and yields to very low levels, the old investment textbook had been made obsolete.

Therefore the classic advice about the proper balance between stocks and bonds brings new and perhaps unrecognized risks, with corresponding pockets of opportunity elsewhere. Yet the classic advice met a need which still exists: how to accommodate varying needs for liquidity and tolerance of volatility.

Our adaptation to this new world is the portfolio structure you see above. Our classic research-driven portfolio methods live in the Long Term Core. We believe our fundamental principles are timeless, and make sense in all conditions.

But people need the use of their money to live their lives and do what they need to do. So a cash layer may be needed, tailored to individual circumstances.

The layer between is ballast. This refers to holdings that might be expected to fall and rise more slowly than the overall stock market. Ballast serves two purposes. It dampens volatility of the overall portfolio, thereby making it easier to live with. Ballast may serve as a source of funds for buying when the market seems to be low.

The client with higher cash needs or who desires lower volatility may use the same long term core as the one who wants maximum potential returns. One may want a ‘cash-ballast-long term core’ allocation of 10%-25%-65% and the next one 4%-0%-96%. It’s a free country, you can have it your way.

It may be time to review the structure of your portfolio. Clients, if you would like to talk about this or anything else, please email us or call us.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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