From Lottery Tickets to Real FInancial Planning

Except for three lucky lottery ticket holders this weekend, for the rest of us, real financial planning and wealth management is still a very important priority.

Our goal for our clients is to help them achieve a sense of financial comfort and security. For each client, this may mean something very unique and different.  Our objective is to assist them in making good financial decisions, allocating their investments properly and working with them over time, so that they will be able to handle the volatility (the ups and downs) of the stock market.

While winning hundreds of millions of dollars Friday night sounded great, the reality is that your financial success will be the result of a few key decisions that you make over the course of your lifetime.  Note that I did not state many decisions, but a few key decisions.

These key decisions may include:

• Having a proper team of advisers, including a financial advisor and an estate planning attorney.
• The spending decisions you make, particularly on how much to spend on your house, cars and vacations. Are you living within your means and saving money on a regular basis?
• Deciding to stick with an investment plan, or jumping in and out of the stock market, because you are scared or can't handle the ups and downs in the short term. For example, if you got out of the stock market during 2008 or 2009, or during the summer of 2011, those may have seemed liked good decisions at the time. However, they were probably not decisions that in the long run were in your best financial interest. 

Some of the benefits that our clients receive, or they have told us they have received, are:

• Less financially related stress, as they know that they have a good long-term investment plan in place and a team of advisers they can talk to.
• An investment plan that includes minimizing your taxes in a very effective manner.
• A real understanding of the high costs of their investments. When we begin to work with clients, many are very surprised about the true cost of their previous investments, which they were not fully aware of. We can almost always reduce this cost.
• A lot less mail, and thus, less time that they have to spend dealing with their investments.
• Knowing that they have a wealth management firm that has the client's interest as a priority, which comes ahead of the firm's financial interest (we actually have a legal obligation to put the client's interest first, which not all financial advisory firms can say or do).

So as the first quarter of 2012 ends, with the US stock market up a very surprising 12%, and international markets up even more, please take a moment to consider your investment decisions.

Are there any key decisions you could make today, other than buying a lottery ticket, that will have a significant impact on your financial life, 10, 20 or 30 years from now?

Financial Advisors Keep Learning

As the world is continuously changing, and the financial markets certainly are, it is important that we as financial advisors continue to learn, listen and interact with top industry experts.

Keith and I recently attended a series of programs in late September, as we do multiple times a year. I participated in a “Masters Forum” study group on Friday and Saturday, September 23-24th. This group of 20-25 members, which started in 2006, meets twice a year, once in the fall and once in the spring. We also talk in smaller groups every two weeks, to discuss topical issues. Keith participated in a similar study group on Sunday, and also talks to members of his peer group on a regular basis throughout the year.

These sessions were followed by the BAM Annual National Conference, which is a 3 day event featuring top speakers from across the country. This conference is attended by approximately 125 firms, representing $14 Billion in assets under management.

The following are some of the items from these meetings:

• Investor behavior is critical to investment success. That was the message of Carl Richards, of http://www.behaviorgap.com/. This NY Times weekly writer and sketch artist, has developed a series of sketches to explain and discuss complex financial issues in a simpler manner. We now have 4 of his sketches in our office, and will soon have a fifth. Visit us to see them!
• Carl emphasized the importance of investors' behaviors and emotions, which cause huge gaps (differences) between market returns and what most people actually earn on their own (usually much less!).
• We interacted with a number of portfolio managers and mutual fund executives, regarding updates on the financial markets and the strategies that we utilize. We are very confident in our long term investment philosophy, which for stocks is primarily implemented through Dimensional Fund Advisors (DFA) mutual funds.
• Hedge funds: we continue to not recommend them, as they are hard to evaluate, costs are huge (relative to mutual funds that we recommend), a substantial numbers of these funds fail, which makes historical analysis very difficult, as the poor performing funds drop out of the databases. 

•  We heard one of the top national speakers on retirement distribution strategies.

• Portfolio rebalancing is critical for long term investment success. Having the discipline to rebalance (to buy certain stocks when they are low, and sell certain stocks when they are high) remains a key part of our philosophy and value we provide to our clients.
•  We discussed the importance of communication skills and truly listening to our clients. One of the speakers, Mitch Anthony, has written a book titled “Defining Conversations.” He stressed the importance of real conversations, about deep issues and concerns, not just having superficial discussions. I started this book and highly recommend it.

Throughout the five days, we had the opportunity to share ideas and discuss various topics with both industry experts, as well as our peers throughout the country. This strong network of fellow advisors is an important component of our firm, as being able to discuss both specific client situations and general financial issues is critical to maintaining our discipline and add intellectual value on behalf of our clients.

10 Years from now Tweet

Diversify globally. Be disciplined. Focus on long term. Have a written plan. Control what you can control. Be positive.Use index-like funds.

Today's @dominoproject related prompt was to write a message to yourself, 10 years from now, in the form of a text or tweet. A tweet is limited to 140 characters, as is the above advice.

This advice is short and concise, but I am very confident that 10 years from now, this will prove to be good advice, which will benefit those that adhere to it.