In a recent meeting with a client, we were reviewing the various sources
of income available to her when she calls it quits in a few months.
Although all of our mathematical projections indicated she would be just
fine in her golden years, my experience and instincts lead me to
believe her transition to retirement won’t be smooth.
I can see a problem developing that’s a common issue with many retirees.
I’ve never touched on the subject in this column before and I can’t
recall reading about it in any of my various professional journals.
The problem is simply that after years and years of being in the mindset
of accumulation, many retirees find it extremely difficult to switch to
the distribution phase of life. It’s sort of a psychological issue.
Changing a lifelong mindset is a challenge for many people.
As young boys and girls, many of us had piggy banks. It wasn’t uncommon
to hear the old Ben Franklin phrase, “A penny saved is a penny earned.”
Consequently, many learned the importance of saving at a young age.
During the piggy bank years, many were also taught by mom and dad to set
aside a little of everything they earned. So, from babysitting to lawn
cutting and snow shoveling, a few dollars were saved here and there.
After high school, it was much more difficult to save anything during
the college years. Speaking for myself, I worked throughout college and
tried to save. But what little I was able to put aside didn’t last very
long. Before I knew it, a new semester would arrive, and with it the
tuition that took all my savings and more.
So, for most, the college years are neither accumulation nor
distribution years. They’re simply the years you hope you get through
without amassing significant debt.
The working years are when saving begins in earnest. For many, that’s a
thirty or forty-year timeframe and many do put aside a portion of their
paycheck.
Month after month and year after year people receive statements that
show their savings and investment accounts are growing. And for most,
the satisfaction of seeing that growth becomes habit forming.
The accumulation stage of life began with a piggy bank and continued for
a thirty or more year working career. Then, suddenly, at retirement,
the accumulation stage ends.
Many struggle when the accumulation years end, not so much financially
as psychologically. It’s difficult to seeing their savings or retirement
accounts decrease in value.
Sudden downturns in the investment world are a bit more painful. A
withdrawal from a savings account entails a lot of agonizing thoughts.
As a financial adviser, I can’t tell you how many times clients have
complained because of mandated annual withdrawals from their retirement
accounts once they reach age 70.
From experience, I know many retirees struggle with the thought of
tapping their retirement savings. But, remember, one of the reasons you
save is to have sources of income when you retire. It’s okay to tap your
savings.
It can be difficult to change mindsets from accumulation of money to
distribution. But, with proper planning, the transition from
accumulation to distribution becomes clearer and anxiety free. A
financial adviser can ease that transition by helping you develop
reliable, predictable income streams.
Monday, June 15, 2015
Monday, June 8, 2015
Hatching a plan to protect your nest egg
In this economic environment of low interest rates, there have recently
been a number of articles published about how much retirees can annually
withdraw from their investment portfolio without depleting their nest
egg. Opinions vary among financial professionals, but the general
consensus appears to be 4 percent.
In other words, retirees with $100,000 in their nest egg could withdraw $4,000 (4 percent) without worrying too much about depleting their nest egg. Of course, this is an oversimplified method of determining your annual investment income, but it is a useful guideline.
That being said, while I consider withdrawing four percent to be a helpful benchmark, I believe that strictly following this method could possibly turn out to be a mistake.
For example, what if a retiree’s entire nest egg was in a safe, but low-yielding bank account? In that case, withdrawing 4 percent from a $100,000 account would more than likely put the value in year two below the initial $100,000.
Then, in year two, a 4 percent withdrawal from $96,000 would result in income of less than $4,000. Continuing to follow this method will result in decreasing annual income until or unless interest rates suddenly spiked up.
In a similar fashion, if a retiree had his or her nest egg invested strictly for growth, the market’s performance in recent years should have created an increase in the value of the nest egg. The result of that, of course, would also be a slight increase in the amount of annual income withdrawn, utilizing the 4 percent strategy.
Again, I feel that the 4 percent withdrawal strategy is a helpful guideline. Nonetheless, as a financial adviser, I think simply focusing on how much you can withdraw every year might cause you to overlook a very important factor.
Before I explain, let’s set the table. As I’ve written many times, most retirees would be best served by maintaining a diversified, well-balanced portfolio. What I’m concerned about for my readers and clients more than the 4 percent withdrawal rule is the sequence of investment returns.
Looking at historical data from 1989 through 2008, the unmanaged Standard and Poor’s 500 Index had an average rate of return of 10.36 percent. Back then, interest rates were also higher, so for example purposes, instead of withdrawing four percent annually, let’s withdraw 5 percent.
One of the best years in this 20-year cycle was a positive annual return of 31.6 percent. The worst year saw a negative annual return of 37 percent. If the negative 37 percent were in the first year, a retiree would run out of money in year nineteen.
If, on the other hand, the negative 37 percent were in year twenty of the mathematical cycle, the retiree would still have a significant nest egg.
In other words, it’s the early years of retirement income that are the most critical. It’s crucial for a retiree to avoid an immediate downturn to his or her nest egg. It’s crucial to keep a close eye on your returns, and adjust your withdrawal percentage accordingly.
The debate over what the proper amount a retiree can withdraw may continue indefinitely. In my mind, however, based on history, what’s far more important is the sequence of returns and avoiding an early tumble in your nest egg.
In other words, retirees with $100,000 in their nest egg could withdraw $4,000 (4 percent) without worrying too much about depleting their nest egg. Of course, this is an oversimplified method of determining your annual investment income, but it is a useful guideline.
That being said, while I consider withdrawing four percent to be a helpful benchmark, I believe that strictly following this method could possibly turn out to be a mistake.
For example, what if a retiree’s entire nest egg was in a safe, but low-yielding bank account? In that case, withdrawing 4 percent from a $100,000 account would more than likely put the value in year two below the initial $100,000.
Then, in year two, a 4 percent withdrawal from $96,000 would result in income of less than $4,000. Continuing to follow this method will result in decreasing annual income until or unless interest rates suddenly spiked up.
In a similar fashion, if a retiree had his or her nest egg invested strictly for growth, the market’s performance in recent years should have created an increase in the value of the nest egg. The result of that, of course, would also be a slight increase in the amount of annual income withdrawn, utilizing the 4 percent strategy.
Again, I feel that the 4 percent withdrawal strategy is a helpful guideline. Nonetheless, as a financial adviser, I think simply focusing on how much you can withdraw every year might cause you to overlook a very important factor.
Before I explain, let’s set the table. As I’ve written many times, most retirees would be best served by maintaining a diversified, well-balanced portfolio. What I’m concerned about for my readers and clients more than the 4 percent withdrawal rule is the sequence of investment returns.
Looking at historical data from 1989 through 2008, the unmanaged Standard and Poor’s 500 Index had an average rate of return of 10.36 percent. Back then, interest rates were also higher, so for example purposes, instead of withdrawing four percent annually, let’s withdraw 5 percent.
One of the best years in this 20-year cycle was a positive annual return of 31.6 percent. The worst year saw a negative annual return of 37 percent. If the negative 37 percent were in the first year, a retiree would run out of money in year nineteen.
If, on the other hand, the negative 37 percent were in year twenty of the mathematical cycle, the retiree would still have a significant nest egg.
In other words, it’s the early years of retirement income that are the most critical. It’s crucial for a retiree to avoid an immediate downturn to his or her nest egg. It’s crucial to keep a close eye on your returns, and adjust your withdrawal percentage accordingly.
The debate over what the proper amount a retiree can withdraw may continue indefinitely. In my mind, however, based on history, what’s far more important is the sequence of returns and avoiding an early tumble in your nest egg.
Monday, June 1, 2015
Compound interest: Simple math, complicated problem
One of my favorite quotes comes from American icon Albert Einstein, who,
although German born, became an American citizen in 1940. Albert
observed that, “Compound interest is the eighth wonder of the world. He
who understands it, earns it; he who doesn’t, pays it.”
I believe this quote is especially applicable in this day and age where households, college students and government agencies are being overwhelmed by debt. Evidently, not enough people paid attention to Einstein.
It’s interesting that so many disregard the math by living beyond their means and borrowing too much money. Even our lawmakers — at virtually every level — continue to try legislating the impossible. At the end of the day, no matter how you try to alter math equations, real math ultimately becomes the reality.
Our neighbors across Lake Michigan in Rockford, Illinois, serve as a good example. The city recently tried to alter their pension commitments. As we all know, it happened here in Detroit. Many city retirees were forced to take reductions in their pension payouts.
But things went differently in Illinois. The state Supreme Court ruled that such a move violated the state constitution. As a result, Moody’s, the credit rating service, immediately downgraded Illinois’ debt to junk status. In simple terms, the state of Illinois has severe pension issues and it doesn’t have any viable financial solutions.
Chicago is in an especially dire situation. The city’s pension obligations are underfunded by some $20 billion. How can such a situation be solved? Well, you can raise taxes, cut the amount pensioners receive or increase the amount they pay in. Good luck with trying to make any of those options happen.
Sadly, this situation is occurring at the city and state level all over America. It appears that Illinois and California are the two states with the most insurmountable financial issues, in both cases caused primarily by underfunded pensions liabilities.
In our own beloved Michigan, I’m a bit concerned how some government agencies are tackling their underfunded pension problems. Looking back, the city of Detroit under Kwame Kirkpatrick borrowed over $1 billion to “solve” the pension problem. We all know how that ended.
But both Oakland County and, just recently, Macomb County also borrowed money to meet some of their obligations. Macomb County recently floated 24-year bonds at 3.5 percent. Mathematically, this means they need to invest the funds at a rate greater than 3.5 percent to come out ahead.
Is that an attainable goal? Possibly. In fact, it may even be probable that the outcome is favorable. But by no means is it a risk-free scenario.
Pensions are a great example of the impossibility of outsmarting the math. When most pensions were established, life expectancies were a lot less. Social Security is a good example of how increased life expectancies can impact finances.
Dartmouth University recently concluded that Social Security will likely have final issues much sooner than the official projection date of 2033. And that’s because people are living just over one year longer than government projections.
Albert Einstein understood the importance of mathematics and compound interest. At the end of the day, two plus two will always equal four no matter how much any individual or legislative body attempts to alter the equation.
I believe this quote is especially applicable in this day and age where households, college students and government agencies are being overwhelmed by debt. Evidently, not enough people paid attention to Einstein.
It’s interesting that so many disregard the math by living beyond their means and borrowing too much money. Even our lawmakers — at virtually every level — continue to try legislating the impossible. At the end of the day, no matter how you try to alter math equations, real math ultimately becomes the reality.
Our neighbors across Lake Michigan in Rockford, Illinois, serve as a good example. The city recently tried to alter their pension commitments. As we all know, it happened here in Detroit. Many city retirees were forced to take reductions in their pension payouts.
But things went differently in Illinois. The state Supreme Court ruled that such a move violated the state constitution. As a result, Moody’s, the credit rating service, immediately downgraded Illinois’ debt to junk status. In simple terms, the state of Illinois has severe pension issues and it doesn’t have any viable financial solutions.
Chicago is in an especially dire situation. The city’s pension obligations are underfunded by some $20 billion. How can such a situation be solved? Well, you can raise taxes, cut the amount pensioners receive or increase the amount they pay in. Good luck with trying to make any of those options happen.
Sadly, this situation is occurring at the city and state level all over America. It appears that Illinois and California are the two states with the most insurmountable financial issues, in both cases caused primarily by underfunded pensions liabilities.
In our own beloved Michigan, I’m a bit concerned how some government agencies are tackling their underfunded pension problems. Looking back, the city of Detroit under Kwame Kirkpatrick borrowed over $1 billion to “solve” the pension problem. We all know how that ended.
But both Oakland County and, just recently, Macomb County also borrowed money to meet some of their obligations. Macomb County recently floated 24-year bonds at 3.5 percent. Mathematically, this means they need to invest the funds at a rate greater than 3.5 percent to come out ahead.
Is that an attainable goal? Possibly. In fact, it may even be probable that the outcome is favorable. But by no means is it a risk-free scenario.
Pensions are a great example of the impossibility of outsmarting the math. When most pensions were established, life expectancies were a lot less. Social Security is a good example of how increased life expectancies can impact finances.
Dartmouth University recently concluded that Social Security will likely have final issues much sooner than the official projection date of 2033. And that’s because people are living just over one year longer than government projections.
Albert Einstein understood the importance of mathematics and compound interest. At the end of the day, two plus two will always equal four no matter how much any individual or legislative body attempts to alter the equation.
Tuesday, May 26, 2015
Enjoy your freedoms responsibly this Memorial Day
Earlier this month I took my mom to a public park with a beautiful,
peaceful river setting. It was a special place for mom because she and
my late father spent a lot of time there together.
When we arrived and pulled into the busy parking lot, I was fortunate to find a parking spot just a stone’s throw away from a bench with a breathtaking view.
When I turned the engine off, my mother became upset because she forgot her handicapped-parking permit. Since the car was parked next to the bench, I wasn’t overly concerned. We were close enough to the spot that I would see any law enforcement, and I couldn’t imagine them writing a ticket, seeing my mom with her walker.
Fortunately, my mother enjoyed her short stay at the park, which I’m certain rekindled memories of my father, who was a veteran. We eventually left without incident.
I bring this up because it’s Memorial Day weekend. Households throughout the nation are sharing memories of their loved ones. Sometimes we forget about those that gave their lives for our nation. Their dedication and commitment is the backbone of our culture today.
The dedication of military personnel is the reason we have the freedom to elect the officials that make and enforce our laws. The freedoms that many died for and continue to defend, including our financial freedom.
By that I simply mean the ability to make our own financial decisions. As with all other aspects of freedom, there is responsibility, and that includes fiscal responsibility.
What exactly does fiscal responsibility encompass? Each and every day you’re faced with countless decisions that impact your financial well being. Responsibility means being prudent with every paycheck and understanding its boundaries. It begins when you jump out of bed in the morning and leave for work.
For many, the first financial decision of the day is whether to brew your coffee at home or make an expensive stop at the coffee shop. Do you bring your lunch or spend a few dollars every day at a nearby restaurant or fast food place?
While at work, do you ever find time to check your benefits? In other words, how much time do you allocate to your retirement plan? Are you taking full advantage of any employer match? And don’t forget to see if your employer offers a menu of other benefits, including healthcare choices and supplemental life insurance.
As you go through your daily routine, are dollars falling from your pocketbook just because of that routine? Again, being smart and prudent is a choice; a freedom that should not be taken for granted. Credit cards might make it easy and tempting for impulsive spending, but fiscal independence puts the responsibility to avoid overspending squarely on your shoulders. The stress of outstanding credit card debt has ruined many lives. Don’t let yours be one of them.
As we salute our military and those that have previously served, keep in mind that they are the ones that have maintained the entire foundation that allows us to live the lifestyle we enjoy. It’s too easy to take our freedoms, including financial freedom, for granted. You are free to choose how to save or invest or spend or spend your money. Please do so responsibly.
When we arrived and pulled into the busy parking lot, I was fortunate to find a parking spot just a stone’s throw away from a bench with a breathtaking view.
When I turned the engine off, my mother became upset because she forgot her handicapped-parking permit. Since the car was parked next to the bench, I wasn’t overly concerned. We were close enough to the spot that I would see any law enforcement, and I couldn’t imagine them writing a ticket, seeing my mom with her walker.
Fortunately, my mother enjoyed her short stay at the park, which I’m certain rekindled memories of my father, who was a veteran. We eventually left without incident.
I bring this up because it’s Memorial Day weekend. Households throughout the nation are sharing memories of their loved ones. Sometimes we forget about those that gave their lives for our nation. Their dedication and commitment is the backbone of our culture today.
The dedication of military personnel is the reason we have the freedom to elect the officials that make and enforce our laws. The freedoms that many died for and continue to defend, including our financial freedom.
By that I simply mean the ability to make our own financial decisions. As with all other aspects of freedom, there is responsibility, and that includes fiscal responsibility.
What exactly does fiscal responsibility encompass? Each and every day you’re faced with countless decisions that impact your financial well being. Responsibility means being prudent with every paycheck and understanding its boundaries. It begins when you jump out of bed in the morning and leave for work.
For many, the first financial decision of the day is whether to brew your coffee at home or make an expensive stop at the coffee shop. Do you bring your lunch or spend a few dollars every day at a nearby restaurant or fast food place?
While at work, do you ever find time to check your benefits? In other words, how much time do you allocate to your retirement plan? Are you taking full advantage of any employer match? And don’t forget to see if your employer offers a menu of other benefits, including healthcare choices and supplemental life insurance.
As you go through your daily routine, are dollars falling from your pocketbook just because of that routine? Again, being smart and prudent is a choice; a freedom that should not be taken for granted. Credit cards might make it easy and tempting for impulsive spending, but fiscal independence puts the responsibility to avoid overspending squarely on your shoulders. The stress of outstanding credit card debt has ruined many lives. Don’t let yours be one of them.
As we salute our military and those that have previously served, keep in mind that they are the ones that have maintained the entire foundation that allows us to live the lifestyle we enjoy. It’s too easy to take our freedoms, including financial freedom, for granted. You are free to choose how to save or invest or spend or spend your money. Please do so responsibly.
Monday, May 18, 2015
May your launch be successful, college graduates
This is the time of year when many of life’s transitions are launched.
There are a lot of young adults graduating from high school who will
soon be leaving home for the very first time. Similarly, there are a lot
of young men and women who are graduating from college, ready to step
out into the world and hoping to become self sufficient.
In a perfect world, all of them would either be launching their professional careers or continuing their education in a specialized program such as medical or law school.
But the world isn’t perfect. Yes, the economy may be improving, but far too many young adults will be returning home to mom and dad, still seeking their destiny.
May is also what I refer to as the beginning of the wedding season. In fact, it was exactly one year ago that one of my sons got married. And whether or not the bride and groom have matriculated through college, they too, are making a major transition.
So, we have high school grads, college grads and newlyweds, each of them embarking on lifelong journeys and all beginning in and around the month of May.
To all those young men and women graduating from high school or college or beginning their lives together with a significant other,
I offer a tip of my hat — and some advice.
At many graduation ceremonies the speaker encourages the graduates to change the world in a positive manner. I agree that this is a wonderful and compelling message, but I offer something more specific. I want to encourage all young adults to be fiscally responsible.
What exactly do I mean by fiscally responsible? First and foremost, keep your debt under control. If you borrowed money to get through college, simply pay it back.
Unfortunately there has never been more college debt than there is today, but loans should be repaid. You can always rationalize why repaying your debt should be put on the back burner. But, at the end of the day, your debt is your responsibility, not your fellow taxpayers.
Another piece of advice is simply to live within your means. In this world you can quickly run up sizeable debt with a visit to Amazon and a few clicks. I’m not suggesting that you don’t spend, but, just as with investments, balance is the key.
Finally, develop good savings habits. Don’t just save what’s left over, but rather become a disciplined saver. For example, start saving $50 per month and stick with it no matter what. A year later, increase the amount to $100. This is just an example, but making savings a habit is important.
I include newlyweds in the ‘major transition’ equation because, in financial terms, marriage is somewhat of a financial merger. You might be marrying into a large college debt or marrying someone who can’t save a nickel.
Unfortunately, money disagreements are often cited as a reason why marriages don’t succeed. My suggestion is talk about money prior to tying the knot. Both parties should be aware of the circumstances.
I believe it’s important to develop proper money skills and habits. Over the years, I’ve observed that those who have a grasp of their finances turn out to be more responsible, generous and confident in their future.
In a perfect world, all of them would either be launching their professional careers or continuing their education in a specialized program such as medical or law school.
But the world isn’t perfect. Yes, the economy may be improving, but far too many young adults will be returning home to mom and dad, still seeking their destiny.
May is also what I refer to as the beginning of the wedding season. In fact, it was exactly one year ago that one of my sons got married. And whether or not the bride and groom have matriculated through college, they too, are making a major transition.
So, we have high school grads, college grads and newlyweds, each of them embarking on lifelong journeys and all beginning in and around the month of May.
To all those young men and women graduating from high school or college or beginning their lives together with a significant other,
I offer a tip of my hat — and some advice.
At many graduation ceremonies the speaker encourages the graduates to change the world in a positive manner. I agree that this is a wonderful and compelling message, but I offer something more specific. I want to encourage all young adults to be fiscally responsible.
What exactly do I mean by fiscally responsible? First and foremost, keep your debt under control. If you borrowed money to get through college, simply pay it back.
Unfortunately there has never been more college debt than there is today, but loans should be repaid. You can always rationalize why repaying your debt should be put on the back burner. But, at the end of the day, your debt is your responsibility, not your fellow taxpayers.
Another piece of advice is simply to live within your means. In this world you can quickly run up sizeable debt with a visit to Amazon and a few clicks. I’m not suggesting that you don’t spend, but, just as with investments, balance is the key.
Finally, develop good savings habits. Don’t just save what’s left over, but rather become a disciplined saver. For example, start saving $50 per month and stick with it no matter what. A year later, increase the amount to $100. This is just an example, but making savings a habit is important.
I include newlyweds in the ‘major transition’ equation because, in financial terms, marriage is somewhat of a financial merger. You might be marrying into a large college debt or marrying someone who can’t save a nickel.
Unfortunately, money disagreements are often cited as a reason why marriages don’t succeed. My suggestion is talk about money prior to tying the knot. Both parties should be aware of the circumstances.
I believe it’s important to develop proper money skills and habits. Over the years, I’ve observed that those who have a grasp of their finances turn out to be more responsible, generous and confident in their future.
Monday, May 11, 2015
Annual report: We need to pay attention to Generation Y
Every year in late April, I attend a conference with some of the most
respected financial advisers from around the country. In many ways, the
conference reminds me of my college years. That’s because I continue to
learn a great deal in the conference’s classroom. And the interaction,
thoughts and ideas from my peers are just as valuable as the items on
the conference agenda.
One focus of the agenda was Generation Y, often referred to as the Millennials; those born between 1977 and 1995. Keep in mind, for the first time in our nation’s history, there are actually four generations in the workforce. In addition to Generation Y, there’s Generation X (1965-1976); my generation, commonly called the Baby Boomers (1946-1964); and the Traditionalists (pre-1946).
Virtually every day, you can come across someone from each of the various age groups in the workplace. The crowded demographics make it easy to see why it’s so difficult for high school age kids to find summer employment.
The financial services industry needs to pay more attention to Generation Y. After all, there are 80 million people in Generation Y, virtually the same number as the Baby Boomers. Like the Boomers, Generation Y is going to need financial advisers to guide them through the complexities of the investment world.
Every generation has a defining moment. For Baby Boomers, it was the assassination of JFK. It appears that 9/11 will be the defining moment for Generation Y. And while Generation Y will have more college graduates than any generation, they will also have more college debt. Far more.
The financial services field is a graying field. It’s in need of Generation Y advisers to help their peers with the financial decisions they need to make throughout their lifetimes. As Baby Boomer advisers, my generation needs to train, educate and eventually pass the torch on to the younger advisers. It’s beginning to happen and I’m confident that Generation Y will understand the importance of financial issues. I’m somewhat embarrassed, nonetheless, that they’ll need to tackle some financial issues that Baby Boomers are currently kicking down the road.
Finally, I have to say that our keynote speaker, Condoleezza Rice, is one of the brightest people I’ve ever encountered. From her tenure as Secretary of State she has a great understanding of the many hot spots throughout the world.
Today, besides teaching, she also serves on the NCAA college football playoff selection committee where she was in charge of evaluating our own Big Ten Conference. Whatever your politics may be, there’s no questioning her considerable knowledge. Her comments and opinions were always respectful; a rare trait in today’s political environment.
Summarizing, the classroom information was great and I think perhaps this should be the “discussion of or with my peers.” Our featured speaker spent years trying to make the world a safer place, and we spent a fair amount of time trying to get our arms around Generation Y and their finances.
Our world will always need quality people like Condoleezza Rice. People who try to make the world a better place for the generations to come, each of which will need some sort of financial advice. I believe that Generation Y is no exception and I have every confidence that they are up to the challenges that lie ahead.
One focus of the agenda was Generation Y, often referred to as the Millennials; those born between 1977 and 1995. Keep in mind, for the first time in our nation’s history, there are actually four generations in the workforce. In addition to Generation Y, there’s Generation X (1965-1976); my generation, commonly called the Baby Boomers (1946-1964); and the Traditionalists (pre-1946).
Virtually every day, you can come across someone from each of the various age groups in the workplace. The crowded demographics make it easy to see why it’s so difficult for high school age kids to find summer employment.
The financial services industry needs to pay more attention to Generation Y. After all, there are 80 million people in Generation Y, virtually the same number as the Baby Boomers. Like the Boomers, Generation Y is going to need financial advisers to guide them through the complexities of the investment world.
Every generation has a defining moment. For Baby Boomers, it was the assassination of JFK. It appears that 9/11 will be the defining moment for Generation Y. And while Generation Y will have more college graduates than any generation, they will also have more college debt. Far more.
The financial services field is a graying field. It’s in need of Generation Y advisers to help their peers with the financial decisions they need to make throughout their lifetimes. As Baby Boomer advisers, my generation needs to train, educate and eventually pass the torch on to the younger advisers. It’s beginning to happen and I’m confident that Generation Y will understand the importance of financial issues. I’m somewhat embarrassed, nonetheless, that they’ll need to tackle some financial issues that Baby Boomers are currently kicking down the road.
Finally, I have to say that our keynote speaker, Condoleezza Rice, is one of the brightest people I’ve ever encountered. From her tenure as Secretary of State she has a great understanding of the many hot spots throughout the world.
Today, besides teaching, she also serves on the NCAA college football playoff selection committee where she was in charge of evaluating our own Big Ten Conference. Whatever your politics may be, there’s no questioning her considerable knowledge. Her comments and opinions were always respectful; a rare trait in today’s political environment.
Summarizing, the classroom information was great and I think perhaps this should be the “discussion of or with my peers.” Our featured speaker spent years trying to make the world a safer place, and we spent a fair amount of time trying to get our arms around Generation Y and their finances.
Our world will always need quality people like Condoleezza Rice. People who try to make the world a better place for the generations to come, each of which will need some sort of financial advice. I believe that Generation Y is no exception and I have every confidence that they are up to the challenges that lie ahead.
Tuesday, May 5, 2015
Don’t abandon ship yet — one day does not make a trend
Time and time again I have emphasized that diversification is a key
ingredient in the recipe for long-term investment success. I have also
made readers aware that the current uptrend in the financial markets is
now more than six years old. In other words, it’s one of the longer bull
markets in our nation’s financial history.
To go six years without a 10 percent correction is quite remarkable. To a certain degree, the investment world is like a living being in that it periodically inhales and exhales. So, after six years of exhaling, seeing the markets stop and take a breath shouldn’t be a surprise — or cause for alarm — for anyone.
There’s no question that the world is facing some serious issues. Some of them so serious, in fact, that they could potentially light the fuse and ignite global warfare.
Here at home, even though most investors have seen their account values appreciate over the past six years, I sense that many feel the economy still hasn’t totally recovered from the recession.
In a recent column I made readers aware that a dollar dominated world currency is currently being challenged. Although the effort is being led by China, even some of our close allies have lent support, including France, Germany and the United Kingdom.
I won’t go into the ramifications of the U.S. dollar losing its status as the world’s reserve currency. Suffice it to say that it’s quite worrisome. That being said, however, there has always been something to worry about.
There’s an old saying that successful investors must be able to climb the wall of worry. I have often referred to it as needing an iron stomach. Considering the many serious issues around the world, I think we can add “nerves of steel” to that list of requirements.
Remember, bad news sells. When you turn on the TV or radio, the lead story is seldom about some great philanthropic event. More often than not, it’s about a tragedy, crime or some controversial political issue.
I noticed that immediately after the markets plunged on April 17, the Internet and my email were flooded with disturbing solicitations that preyed upon fear. I personally was warned of “the coming economic collapse,” to “cash out now and buy gold,” and to “buy this report to avoid doomsday.”
Stating the obvious, nobody has a crystal ball. As a financial adviser, when I work with a client to develop a diversified well-balanced portfolio, I design it with them for the long term.
Of course there are periodic reviews that may result in the plan being modified or tweaked. It’s essential to follow that course of action rather than eventually hitting the panic button and changing everything.
Unfortunately, I’ve seen that happen. People abandoning their strategy and letting emotions take over. Emotions are a dangerous thing for investors. They often lead to impulsive decisions that seldom work out. Long-term investors understand that setbacks occur and don’t let emotions take over.
A lot of money is made off of a person’s fear. I’m sure that many people responded to the Internet and email warnings after the market drop on April 17. The fear mongers may have cashed in, but abandoning ship rarely works out well for long-term investors.
To go six years without a 10 percent correction is quite remarkable. To a certain degree, the investment world is like a living being in that it periodically inhales and exhales. So, after six years of exhaling, seeing the markets stop and take a breath shouldn’t be a surprise — or cause for alarm — for anyone.
There’s no question that the world is facing some serious issues. Some of them so serious, in fact, that they could potentially light the fuse and ignite global warfare.
Here at home, even though most investors have seen their account values appreciate over the past six years, I sense that many feel the economy still hasn’t totally recovered from the recession.
In a recent column I made readers aware that a dollar dominated world currency is currently being challenged. Although the effort is being led by China, even some of our close allies have lent support, including France, Germany and the United Kingdom.
I won’t go into the ramifications of the U.S. dollar losing its status as the world’s reserve currency. Suffice it to say that it’s quite worrisome. That being said, however, there has always been something to worry about.
There’s an old saying that successful investors must be able to climb the wall of worry. I have often referred to it as needing an iron stomach. Considering the many serious issues around the world, I think we can add “nerves of steel” to that list of requirements.
Remember, bad news sells. When you turn on the TV or radio, the lead story is seldom about some great philanthropic event. More often than not, it’s about a tragedy, crime or some controversial political issue.
I noticed that immediately after the markets plunged on April 17, the Internet and my email were flooded with disturbing solicitations that preyed upon fear. I personally was warned of “the coming economic collapse,” to “cash out now and buy gold,” and to “buy this report to avoid doomsday.”
Stating the obvious, nobody has a crystal ball. As a financial adviser, when I work with a client to develop a diversified well-balanced portfolio, I design it with them for the long term.
Of course there are periodic reviews that may result in the plan being modified or tweaked. It’s essential to follow that course of action rather than eventually hitting the panic button and changing everything.
Unfortunately, I’ve seen that happen. People abandoning their strategy and letting emotions take over. Emotions are a dangerous thing for investors. They often lead to impulsive decisions that seldom work out. Long-term investors understand that setbacks occur and don’t let emotions take over.
A lot of money is made off of a person’s fear. I’m sure that many people responded to the Internet and email warnings after the market drop on April 17. The fear mongers may have cashed in, but abandoning ship rarely works out well for long-term investors.
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