We’re passionate about the process of developing financial plans for long term investors. The secret to doing well in the market is not in buying fad stocks or over-hyped investment products, it’s about developing a long term financial plan and sticking to it. That’s why we are a little frustrated to hear about the federal government’s latest scheme to help out middle class investors.

The US Treasury Department recently unveiled plans to offer guidance to retirees on how to invest their retirement funds into income-yielding investments like annuities. Worried that individuals may outlive their investments, the Obama administration wants to encourage retirees to consider income investment products with guaranteed life payouts.

“By emphasizing investment choices over the planning process, the federal government is doing a disservice to seniors who are looking for guidance on how to make their retirement years as comfortable and stress-free as possible.”

Ted Toal, CFP® –Senior Partner, Rockwood Wealth Management

The good news is that the feds are concerned about every day investors. The bad news is that they think they can help retirees with magic bullet investment products. What good are new investment options without a plan? Picking investments without a process in place is like trying to buy a new car blindfolded.

Investment products are only part of an investment plan. The most important part is the financial planning process, in which a long term plan is developed for each investor. Outliving  savings is a real concern for retirees, who are living longer than ever. However, by emphasizing investment choices over the planning process, the federal government is doing a disservice to seniors who are looking for guidance on how to make their retirement years as comfortable and stress-free as possible.

We believe that financial planners are best suited to helping working investors and retirees plan for retirement. The planning process that we execute is designed to help investors develop financial goals, evaluate their current financial status, and develop a road map for long-term financial stability. Most importantly, our clients get independent advice that’s not tainted by affiliation with one investment product or another. We want what’s best for each client and develop tailored financial advice based on each client’s goals, financial position, and personality.

Do you have any questions about how the government’s new pay-out options will affect your retirement plans? Let us know in the comments!

Or, schedule a no-obligation financial consultation with us.

“Whoever manages my money better beat the S&P 500! What’s your strategy? What’s your performance? Jim Cramer says buy Lehman Brothers. What do you think of Lehman Brothers? Should I buy gold? ”

A prospective client asked these questions during a meeting last year. When I attempted to discuss goals, he directly focused on investments and described the classic investors mistakes he made over the last decade including:

• Buying technology and growth stocks in 1999 and holding to the end of 2002 realizing a huge loss.
• Buying bonds in 2003, just in time for the bond market to decline. (Yes, bonds can and do decline.)
• Buying a property to fix up and flip in 2006. Still holds the property at a loss and cannot sell as the mortgage is higher than the home’s value.

He planned to retire in a few years and wanted advice but didn’t want to talk about goals. He only wanted to focus on investments and strategy.

After a decade of making mistakes, this investor is still looking for the secret to maximize investment returns. But the reality is this: The more you search for investing secrets, the worse your returns will be!

Now, suppose in 1999 he:

• Identified his goals
• Designed a plan with a real financial planner focused on these goals
• Understood the portfolio was a tool, a means to an end.

First, a financial planner would have helped avoid the classic investor mistakes he made.

Second, a financial planner would have designed a diversified portfolio based on his goals. A portfolio designed with an end in mind!

Last, a financial planner would continually monitor the plan, adjusting goals and/or the portfolio allocation based on the plan. In other words, benchmarking the portfolio against the plan, not an arbitrary index.

The time has come to stop searching for the next “hot” investment or guru who can provide market beating returns.

It’s time to define life goals and design a plan with a financial planner toward achieving these goals.

It’s time to meet with a financial planner on a regular basis to benchmark your portfolio against the plan and adjust as required.

It’s time to understand a portfolio is not the end. A portfolio is a means to an end.

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The financial media is back at it.

A recent article in the Financial Times announced that “Anyone who started saving 40 years ago…has found that stocks have performed no better than bonds.”

The article also contains a graph that proudly displays over a 20-year span, from 1929-1949, bonds beat stocks.

Further, the article continues with opinions that stock investing is dead and gives examples of real investors damaged by this market. (We can’t dispute this last part, as many have been damaged by this down market. However, the article tells us nothing about the planning or investment strategy these people followed.)

Of course, the article offers no solutions.

First, let’s examine the claims.

Looking back at the data from February, 1969 through February, 2009, Long-Term Government bonds annualized 8.65% while the S&P 500 annualized 8.44%.

From January, 1929 through December, 1949, Long-Term Government bonds annualized 4.02% while the S&P 500 annualized 3.80%.

And there it is.

The data that proves bonds beat stocks over long periods of time.

Of course, it would have been nice if the Financial Times (or anyone, for that matter) told us in 1969 or 1929 this would happen. No one did.

And, who in the real world does this data apply to?

It only applies to those who invested all their money in stocks on the exact date in 1969 or 1929, and had to withdraw their entire sum in February, 2009 or December, 1949.  That is an unlikely scenario.

But that is beside the point. The real point is, anyone can make a case for anything using hindsight and data mining.

For instance, take the 1929 through 1949 period. How are the returns affected by simply moving the time period forward one year, from 1930 through 1950, and fully diversifying* the equity portfolio?

• Long-Term Bonds annualized return: 3.86%
• Fully diversified equity portfolio: 9.39%

And, what if we move the time period back one year in the 1969-2009 scenario, to 1968-2008?

• Long-Term Bonds annualized return: 8.34%
• Fully diversified equity portfolio: 11.10%

Simply moving the time period makes a big difference!

For you, the reader, these articles are pointless and will do nothing but scare you into inappropriate behavior.

The best move to make is to develop a financial plan with a trusted advisor, and implement the plan with a portfolio specifically targeted for your personal goals. Then, meet regularly with your advisor and adjust the plan and portfolio as needed.

And leave these articles to those who believe everything they read.

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* Diversified Portfolio:

Rebalance: Per 12 Months
Fama/French US Small Value Index (ex utilities): 25%
Fama/French US Large Value Index (ex utilities): 25%
Fama/French US Large Growth Index (ex utilities): 25%
Fama/French US Small Growth Index (ex utilities): 25%
Currency: USD

The occurrence of “market watching” unleashes during a robust bear or bull market. The practice of investors checking the stock market’s daily swings has spread faster than the Pinot Noir fad.

Frequent overused phrases in the media include, “The Market is up big!” or “The Market plunged.”

These market commentary one-liners pop up with increasing frequency at gas stations, soccer fields, grocery stores and permeate everyday life.

But watching the stock market creates bad habits.

Let’s face it-people do not make financial decisions based on what the market does today. Market watching is as productive as staring at a thermometer and shouting numbers in degrees Fahrenheit as the temperature rises and falls by fractions of a degree.

Friends don’t let friends watch the market. A better use of your time is:

1. Determine which of your investments are tax efficient. Most investors have tax deferred accounts (such as IRAs) and taxable accounts (such as joint accounts). Position tax-efficient investments in taxable accounts and  tax-inefficient holdings in IRA accounts.
2. Verify beneficiaries on IRA, 401(k), or any Trust accounts are up to date.
3. Consider refinancing your home. Currently, 30-year fixed rates are below 5%.
4. Have you fully harvested any unrealized losses in your taxable accounts?  These losses have an intrinsic worth as they offset future capital gains and even provide an annual $3,000 tax deduction from normal income each year until fully exhausted.
5. What is the potential estate tax liability if you pass away?  Does your potential estate have the liquidity to pay those taxes or would your heirs have to sell real estate, heirlooms, or even borrow money to meet those tax obligations?
6. What is the deductible on your homeowner’s insurance policy?  It may be too low. If the deductible is $1,000 and you experience a $1,500 loss is it worth filing a claim to collect that $500 and potentially hurt your insurability?  Raising the deductible to $2,500 or higher could lower the premium.

I look forward to a day when investors behave rationally-when they don’t know what the stock market “did” that day. I’m not naive enough to expect good investor behavior, but at least we can take a time out from market watching and focus on areas of our financial lives over which we have control.

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