I’m getting calls.

“I think I might like to get on the sidelines with the upcoming election.”

Usually spoken carefully so as not to be politically charged but, either way, the theme is the same, most clients and acquaintances are preparing for a Biden/Harris presidency.  And many think the market will drop.  Here’s a look at the markets under different administrations… see the full report  here.

Still, Covid-19 remains the bigger economic story as the virus permeates the mid-west, yet also limits activity in the rest of the country, especially those in northern states, and around the world.  I’m not one to decipher how bad things really are vs. how bad they are professed to be, I only know our economy remains stifled on many fronts as we work through the economic uncertainty and epidemiological unknowns.

With millions out of work, the pharmaceutical industry’s success may be the most important story of all.  That said, vaccines aren’t perfect though we’ll need a good one to move forward in a confident way:

“ In a study published July 15 in the American Journal of Preventive Medicine, my colleagues and I used a computer simulation of every person in the country to show how effective a vaccine would have to be and how many people would have to get vaccinated to end the pandemic. We found that a coronavirus vaccine’s effectiveness may have to be higher than 70% or even 80% before Americans can safely stop relying on social distancing.  By comparison, the measles vaccine has an efficacy of 95%-98%, and the (yearly) flu vaccine is 20%-60%.” – Bruce Y. Lee

So as you think about presidential elections and Covid-19 vaccines, it may be best to consider thinking in stages…

Thinking in Stages

Have you ever heard of stage-one and stage-two thinking? They’re terms popularized by economist Thomas Sowell in his book, “Applied Economics: Thinking Beyond Stage One.” Basically, before acting on an event’s initial (stage one) anticipated results, it’s best to engage in stage-two thinking, by first asking a very simple question:

“And then what will happen?”

By asking this question again and again, you can more objectively consider what Sowell refers to as the “long-run repercussions to decisions and policies.”

If I sell out of my investments, what do I expect to happen and when/how will I get “back in”?

Realistically, you don’t know.

Investing in Stages

In investing, we see stage-one thinking in action whenever undisciplined dollars are flooding into hot holdings (yes, some of that appears to be happening now in certain investments!) or fleeing immediately risky businesses. Stage-two thinking reminds us how often the relationship between an event and the world’s response to that event is anybody’s guess and nobody’s certain bet. 

A previous Investopedia article, “Does Rainfall in Ethiopia Impact the U.S. Market?” reminds us how market pricing works: 

“No one knows how any of these events will impact markets. No one. That includes “financial advisors” who have access to complex computer models and investment strategists in the home office with cool British accents. They don’t know, but their livelihood depends upon appearing to know. Few of them are ever held accountable for the innumerable predictions they got wrong. They simply move on to the next prediction, the next tactical move.”

Avoid trying to predict future market pricing based on current market news.

Reflections on Presidential Elections

Stage-two thinking is especially handy when considering the proliferation of predictions for anything from financial ruin to unprecedented prosperity, depending on who will next occupy the Oval Office.

Again, the problem with the vast majority of these predictions is that they represent stage-one thinking. As financial author Larry Swedroe described in a US News & World Report piece, 

“Stage one thinking occurs when something bad happens, you catastrophize and assume things will continue to get worse. … Stage two thinking can help you move beyond catastrophizing. … [so you can] consider why everything may not be as bad as it seems. Think about previous similar circumstances to disprove your catastrophic fears.”

Stage-one thinking by certain pundits makes for good headlines “Sell everything!” 

And then what will happen?

Here are some stage-two thoughts to bear in mind at the current time:

•    Regardless of the outcome of the election (or how the Covid-19 pandemic evolves), there’s no telling whether the markets will move up, down or stay the same in response. By the time they do make their move, the good/bad news will already be priced in, too late to profit from or avoid.
•    In the long run, the market has moved more upward, more often than it moves downward, and it often does so dramatically and when you least expect it.
•    Moving to cash could generate potentially enormous tax bills. Worse, it would run contrary to a sensible approach, optimized to capture the market’s unpredictable returns when they occur, while minimizing the costs and manageable risks involved.

Stage-two thinking should help you recognize the folly of trying to tie your investment hopes, dreams, fears and trading decisions to one or another candidate. Politics matter – a lot – but not when it comes to second-guessing a thoughtful, well-constructed retirement plan and portfolio.

Photo thanks to Ronda Darby on Unsplash

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

The 2020 roller coaster continues.  But before we dive into some 3rd quarter thoughts, here’s some helpful information:

The fourth quarter is usually the best performing quarter for equities, being higher 79% of the time and on average, up 3.9%.

-Yahoo Finance, October 1, 2020

In a third-quarter where markets notched a second consecutive quarter of remarkable overall gains, what stock outshone all the others in the S&P 1500 Composite Index?

Zoom? Apple? Netflix? Nope, none of these, or any of the other trendy FANMAG stocks (Facebook, Amazon, Netflix, Microsoft, Apple and Google’s parent company Alphabet). Not Tesla, either.

It was Tupperware, up a jaw-dropping 345% for the quarter.

“Of course,” you might reason. “Everyone’s cooking at home this year. That makes sense.”

But consider this: Tupperware’s remarkable quarter ramped up most dramatically in late August, after steep, double-digit declines in each of the three previous quarters.

So, feel free to collect more of those sturdy little lid-burping containers, but remember:  Trying to load up on the market’s next big hit based on recent returns is more likely to detract from than contribute to achieving your personal financial goals.

That’s because future returns don’t hinge on what has just happened, or even on what is expected to happen next. Rather, as Dimensional Fund Advisors explains, prices change when the unexpected occurs:

 “For most investments and most investment horizons—a month, a year, five years, even ten years—the realized return is driven far more by the unexpected return than the expected return.”

This applies to surprises like Tupperware, as well as to the supposedly unstoppable FAANG darlings of our day.

In fact, the more popular a big growth-oriented company becomes, the harder it often is for it to keep exceeding everyone’s sky-high expectations. To continue outperforming its popular benchmark, it must continue to deliver bigger, better, ever more pleasant surprises. Eventually a fresh competitor steps into the ring, and the cycle begins anew.

Overall, this is how markets grow, even as the individual players come and go.

Have you ever noticed how the hotshots in your favorite action-adventure shows rarely need to defend against more than one or two challengers at a time? Even when our champion is way outnumbered, the individual attacks arrive in implausibly orderly fashion. Otherwise, our heroes wouldn’t stand a fighting chance.

Pundits often suggest markets are subject to an equally implausible universe, where there’s always an orderly set of reasons for why “X” is about to soar, or “Y” is about to fall. In real-life markets, that’s just not how it works. Everything happens all at once, all the time: 

•         Who is going to be the next U.S. president?
•         When will a COVID-19 vaccine be available?
•         How is Brexit really going to roll out?
•         What are China’s next moves?
•         Are we going to address climate change?
•         How much longer will the FAANGs keep growing larger than life?
•         What other big news is about to hit that we haven’t even seen coming?

In short, investors don’t stand a chance at guessing when and from where the market’s next helping hand or painful punch is going arrive. This is why we continue to recommend positioning your retirement portfolio to harness the power of markets’ broad expected outcomes, rather than their never-ending torrent of erratic incidents.

Photo by Sharon McCutcheon on Unsplash

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

In my previous post we discussed how politics, COVID-19 and the media has been pushing us around – taking an enormous emotional toll, making us feel out of control.

Let’s recap what we’ve discussed in the last post before we move onto steps 3 and 4 of Taking Back Control.

In Post 1 we:

1. Identified your fears

2. Determined what you can control

Today, we’ll discuss steps 3 and 4 below:

3. Do the work

4. Affirm, yes, you have control

Step Three: Do The Work

They say that “everyone without a plan ends up somewhere”.

I’ve never met someone who wanted to end up “somewhere”.

I’m not even sure it’s on the map.

Instead:

1. Determine where you stand, where you want to go and what you need to do to get there. = > Create a plan.

2. Implement your plan.

3. Update and evolve your plan yearly.

When you’ve built a plan and tested it against your fears, you’ve already prepared yourself for some potentially difficult scenarios.

And if the worst happens, you’ll be prepared, and most importantly, you’ll have determined how you will react in advance. When your friends & colleagues are surprised or even “a deer in the headlights”, you’ll know:

“If the stock markets crash 30%, I’m going to “do this” with my investments”.

“I have 5 years worth of retirement income “runway” so even if things go sideways for a while I’ll be fine”.

“If “this party” wins the election, I am prepared for that.”

“If Social Security is reduced by 20%, I know how I will adjust my retirement income plan.”

“If taxes rise, I’ll modify my withdrawal strategy to minimize taxes I pay.”

Pilots Take Control

Step Four: Affirm (and congratulate yourself) that, yes, you have control.

Yes, every plan needs updating, monitoring and optimization but, yes, if you have done the work, you have taken back control.

You have:

1. Identified your fears & concerns

2. Determined what you can control

3. Created and implemented a plan that controls what you can.

4. Affirmed you have control and have pledged to continue to do the work.

Congratulations, you have Taken Back Control.

Recommended read:  See how a Retirement Plan can help you take back control here…

Photo by Byron Sterk on Unsplash

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

​How can we possibly be talking about a stock market bubble when we have:

A contentious election coming up…

An economy that is reeling from the Coronavirus…

Tens of millions of people unemployed in the United States…

Social unrest like we haven’t seen in 50 years…

Deficit spending beyond expectations (even before the Coronavirus)…

And the US debt growing at an enormous rate.

The Fed is wondering where inflation is. 

Well it appears a portion of it is in the US stock market.

Portions of the market have risen significantly in the past few months, and while profits for many of these companies are expected to rise, many of them are simply priced to take over the world.  

Brand loyalty, sure.  Ahead of their peers, yes definitely.  The last of their kind?  Probably not.

Think Chevron vs. Exxon.    Think General Motors versus Ford.    Think Avis vs. Hertz. 

With the news cycle not in sync with the 2020’s stock market performance let’s use a few charts to put things in context.

Despite having more deaths and the highest death per capita of a developed country, the US Stock Market (BLUE) is outperforming most other global stock markets and has outperformed international markets collectively (RED).

​When we examine the US Stock Market as a whole, we see that three areas of the market have done particularly well and three areas of the markets have done particularly poorly. 

Add this all up and you end up with a stock market that has performed well enough even as significant segments have been left behind.  What’s particularly unusual is that the most expensive sectors have outperformed segments that have a higher expected long term rate of return.   

There’s a few theories of why this has happened but evidence suggests that smaller retail traders are buying positions in a variety of companies, bidding prices up.  

Or maybe this is the “inflation” the fed keeps talking about, but can’t find.  

Worth noting that some casinos are not open.

But the stock market is.

In contrast to a rising, bullish stock market, high-quality bonds have done quite well since their initial fall in March due to the Coronavirus.   Contradictory because high quality bonds are where people put money when they are nervous, and the fact that bonds are up so significantly this year means that investors may be nervous. (Or need somewhere other than the stock market to put money!)

High yield bonds, lower quality bonds that pay higher interest, appear to be priced more reasonably given high yield bonds come with more risk….they haven’t recovered as much as high-quality bonds. This this confirms that there is some fear in the bond markets, and it’s important to note that bond investors are generally considered to be significantly more sophisticated than (no offense to the new Robinhood or Etrade investor starting out) small retail investors. Bonds are boring and often owned by financial advisor’s clients, institutions and other organizations that have a long time frame and a desire for stability.

So there’s both fear being recognized in the bond market but also extreme bullishness in other parts of the stock market.

Conflicting signals.  Just like the media.

Note: If you are a client, don’t worry, we’ve considered all of this as we evolve your portfolio allocations in the context of your overall plan.

Thanks to Jean-Paule Rodrigue for sharing his Stages of a Bubble Graphic with the world

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

In 2020, politics, COVID-19 and the media have pushed us around – taking an enormous emotional toll, making us feel out of control.

Focusing on things I cannot control leaves me frustrated and stressed. 

So I focus on what I can control.

You should do the same.

Take back control and leave your stress, worry and frustration behind.

In this two part post, I’ll outline the 4 steps to take back control…

Let’s start with the first two steps…

1. Identify your fears 
2. Determine what you can control.

Realistically, you could apply this 4 step process to many aspects of your life, not just your retirement plan/investments.  But hey, I’m a retirement planner. Let’s dive in…

Step One: Identify your fears. 

Ask yourself “What am I afraid will happen?” 

Are you concerned that…

• The Presidential Election will be won by the wrong party?
• The stock market will crash and your investments will lose money?
• Your cost of healthcare and inflation will rise?
• The economy won’t recover because of Covid-19?
• The US government is spending too much money?
• The government could reduce your Social Security?
• The US is simply on the wrong path?

Any of the aforementioned in isolation could be stressful.  Yet, many I speak to are worried about quite a few of the above.

And while I understand both your and my fears, ruminating about things you can’t control isn’t helpful, or healthy. 

Preparing for events we cannot control is.

So the question really becomes…

If I’m concerned or fearful, what should I do about it?

Of note: allow yourself to worry, even catastrophize, for 15 minutes per day. Then, put your concerns and fears on a shelf. Don’t talk about them, read about them or listen to the media that emphasizes them for the rest of the day.  Take a daily vacation from the things you can’t control.

Step Two: Determine what you can control.

You can control your time, your energy and your life’s outlook and approach.

Here are a few of the things you can control in your retirement:

1. How you prepare prior to retiring
2. How you transition in/when you take SS
3. How much you spend, donate & gift
4. Your withdrawal strategy/Roth conversion strategy
5. Your investment approach/asset location strategy
6. Your retirement income strategy/structure
7. The thoroughness of your planning

Retirement planning can be exciting (not Tesla stock exciting) but seeing your life’s efforts successfully come together in your retirement plan has been exciting, relieving and extremely rewarding for my clients.

And the best part is you can control all of the above.

Watch for Part 2 of this post where I’ll discuss Steps 3 and 4 of taking back control.

Skip ahead?  See how a Retirement Plan can help you take back control here…

Thanks to Miguel Ángel Sanz for sharing their work on Unsplash.

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

2020’s been a heck of a roller coaster, so before we dive into mid-year thoughts, here’s some fun trivia:

Did you know you have to count to 1,000 before you’ll find the letter “a” in a spelled-out number?

We thought you could use that break from the torrent of commentaries on 2020’s bipolar extremes. The general theme has been how quickly global markets sold off and came back – even as economic and sociopolitical headlines continued to stoke bonfires of ongoing upheaval.

And the year is only half over.

We’ve seen comparisons to Rip Van Winkle, who could have slept through the extraordinary turmoil and awakened in June with only minor changes to his 60/40 stock/bond portfolio. 

We’re also seeing predictions that 60/40 portfolios have entered into a lost decade of paltry performance.

Still other forecasters (perhaps to cover all grounds) suggest we’re in a time with “equal reasons for caution and optimism.”  No kidding.

As usual, everyone has something to say.

So, what’s it going to be for the rest of 2020? As always, with respect to your investments, let’s not make any assumptions or firm expectations as an encore through year-end. Instead, let’s agree with Jason Zweig, who wrote in his recent “Intelligent Investor” e-newsletter:

“The first half of 2020 should remind us that investing isn’t about conquering markets; it’s about mastering ourselves.”

In this context, perhaps our trivial pursuit is not so disconnected after all. We know markets are highly likely to deliver inflation-busting returns to those who can patiently “count to a thousand” while riding out the inevitable downturns. We also know investment “success” can take longer than you might think – potentially much longer.

(Clients:  Know this is already factored into your plan.)

Similar to what you might have first guessed about the elusive “a” in our numbering system, the initial assumptions we make about investing are often off-target until we take the time to think them through (or learn from others with relevant experience). As such, we continue to remind you of the evidence on how to persistently participate in markets, lost and found.  We also continue to recommend allocating your wealth appropriately (for you) between the market’s higher-risk, higher-expected-return investments, and the sheltering calm of more stable, but lower-returning holdings.  

(Again, based on your plan, especially if we are creating retirement income for you at this time.)

Have we mastered the right balance for you and your personal financial goals? If not, let’s discuss. In the meantime, let others “conquer” the markets, as you consider these additional words from Zweig:

 “To be an intelligent investor is to recognize that you’re in a lifelong struggle for self-control – an unending effort to keep yourself from yielding to fear or greed, believing that you know what the future holds or letting short-term news knock your long-term plans off track.”

Thanks to Peter Pryharski for sharing their work on Unsplash.

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

My newest clients sought out my services because they lacked confidence in their current advisor.

As I recount the addition of recent new clients, I find myself somewhat amused (at their current adviser’s expense in these cases) for many of the reasons they were not confident and remained uncomfortable.

A few of the contributing reasons….

If you are still nervous about talking to an advisor read my Retirement Planning Terms Explained post here.

Photo by Fabian Blank on Unsplash

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

This is no time for mistakes.

Recently, a non-client asked me to review their investments.

They estimated they were 5 years away from retirement and trying to do the right thing with their money.

They were concerned about their investments because of the pandemic and the financial instability coming with it. Add in the political and, now, social instability and, understandably, they were nervous.

As if one “instability” weren’t enough.

After a quick glance I noted they were aggressively positioned with almost 90% of investments in stocks and about 10% in conservative income investments.

Unable to give specific advice based on this information alone, I asked them about their goals? No real goals other than they were merely trying to do “the right thing. We all do (I think), so this wasn’t particularly revealing.

Next I asked them how much they thought they needed to accumulate to make their retirement “work”?

They stated their goal was $1.0m dollars but admitted they weren’t sure what they needed. Still, not enough for me to be seriously helpful.

Finally, I asked them about their spending plans/use of the assets during retirement. (At this point I’m trying to gather any piece of information that would allow me to provide some context of how they’re positioned and what they needed to think about). They stated they did not know.

This conversation isn’t unusual.

I have it once per week with non-clients.

These are basic questions. These are the questions you need to be able to answer when you are 5 or even 10 years away from retirement.

What is everyone waiting for?

Wouldn’t you feel better if you knew…

Where you stand,

Where you want to go,

What you need to do to get there.

It’s called a retirement plan.

And before you consider retiring you should have one.

See what a real Retirement Plan looks like here…

Image credit: Photo by Aaron Burden on Unsplash

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.