How do you overcome financial uncertainty? You don't (for most people).
If you want to reap the rewards of the stock market, then you will always have to live with some element of financial uncertainty.
If you invest all your money in bank certificate of deposits or US Government Bonds, you will have minimal risk and be rewarded with minimal returns (and really, a negative real return, after taxes and inflation). Otherwise, you cannot completely overcome financial uncertainty. This is a simple, but true concept.
The role of a good financial advisor is to assist you in dealing with this financial uncertainty, so you can become comfortable with the uncertanties of the world, and financial markets, specifically.
More in part II.
This post is prompted by the the @projectdomino writer's challenge. Today's prompt: Overcoming Uncertainty. "Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles." Ralph Waldo Emerson.
This a part of a challenge for bloggers and writers to post, which began on May 31. I will receive a prompt, or idea, from them each day, which may be the basis for that day's post. For more information on this, see my first post on May 31, 2011.
Tuesday, June 28, 2011
Friday, June 24, 2011
Purely Personal: Very Happy after 1,921 Days
Some days you remember for the rest of your life. Yesterday was one of those days.
After 1,921 days, from March 2006 until yesterday, my daughter has worn a back brace for her pediatric scoliosis, nearly 24/7. Starting in 2nd grade. Every day. When it was 95 degrees at summer camp. Every night.
When her wonderful doctor, Dr. Michelle Caird, of the University of Michigan's Children's Hospital told us yesterday afternoon that she no longer had to continue wearing the brace, it was as if my daughter had more than won the lottery. The ear to ear smile never left her face the rest of the day. I think she was smiling while she slept last night.
What was so emotional was how she has handled this for all these years and the things she shared yesterday. These are the life lessons that make us so proud of her, which is why I am writing this.
She realizes that others have had to deal with far worse things. Yes, hers was a daily inconvenience. But she did not have cancer. She was not dying. She just had to wear this brace every day and every night. It was uncomfortable. It meant not being able to wear regular blue jeans or tighter fitting shirts. It meant wearing different clothing than other kids. But she handled this so well, most people never even knew, as she rarely ever complained. She never let it slow her down or contain her enthusiasm for life. Not at all.
She talked of how she could not have done this without so many people's support. Family, friends, other parents, camp counselors and more. Everyone would assist in putting it on for her. Wearing her brace meant that she could not sit on the floor. In grade school, when teachers read during “carpet time,” she would sit on a chair, in the back or side of the room. And quietly, her friends would join her. That is true friendship. That is what supporting someone really means.
So Rachel, we are lucky. You are lucky. The brace worked. You are healthy and have handled this challenge with such maturity, way beyond your age. You did it every day and with a phenomenal attitude. So celebrate! Go buy those jeans you want to!
I am very thankful that your mom was persistent in dealing with your medical issues, and recognized that we needed a new specialist in 2006. I’m thankful that your pediatrician, Dr. Vicky Solway, recommended that we go to UM Children’s Hospital. I’m thankful that Dr. Michelle Caird is so knowledgeable and kind to you. I’m thankful that Ron, of Wright and Fillipis, who made your many braces, treated you so well.
I will miss the closeness of you asking: “Dad, will you put on my brace?” But not too much! And I’ll adjust to this change very well. And I know that you will too.
#trust30 #gratitude
After 1,921 days, from March 2006 until yesterday, my daughter has worn a back brace for her pediatric scoliosis, nearly 24/7. Starting in 2nd grade. Every day. When it was 95 degrees at summer camp. Every night.
When her wonderful doctor, Dr. Michelle Caird, of the University of Michigan's Children's Hospital told us yesterday afternoon that she no longer had to continue wearing the brace, it was as if my daughter had more than won the lottery. The ear to ear smile never left her face the rest of the day. I think she was smiling while she slept last night.
What was so emotional was how she has handled this for all these years and the things she shared yesterday. These are the life lessons that make us so proud of her, which is why I am writing this.
She realizes that others have had to deal with far worse things. Yes, hers was a daily inconvenience. But she did not have cancer. She was not dying. She just had to wear this brace every day and every night. It was uncomfortable. It meant not being able to wear regular blue jeans or tighter fitting shirts. It meant wearing different clothing than other kids. But she handled this so well, most people never even knew, as she rarely ever complained. She never let it slow her down or contain her enthusiasm for life. Not at all.
She talked of how she could not have done this without so many people's support. Family, friends, other parents, camp counselors and more. Everyone would assist in putting it on for her. Wearing her brace meant that she could not sit on the floor. In grade school, when teachers read during “carpet time,” she would sit on a chair, in the back or side of the room. And quietly, her friends would join her. That is true friendship. That is what supporting someone really means.
So Rachel, we are lucky. You are lucky. The brace worked. You are healthy and have handled this challenge with such maturity, way beyond your age. You did it every day and with a phenomenal attitude. So celebrate! Go buy those jeans you want to!
I am very thankful that your mom was persistent in dealing with your medical issues, and recognized that we needed a new specialist in 2006. I’m thankful that your pediatrician, Dr. Vicky Solway, recommended that we go to UM Children’s Hospital. I’m thankful that Dr. Michelle Caird is so knowledgeable and kind to you. I’m thankful that Ron, of Wright and Fillipis, who made your many braces, treated you so well.
I will miss the closeness of you asking: “Dad, will you put on my brace?” But not too much! And I’ll adjust to this change very well. And I know that you will too.
#trust30 #gratitude
Sunday, June 12, 2011
Stock Market Risks: Change Your Thinking
Stock price of ABC Company: today: $ 80
Stock price of ABC Company: 1 month ago $ 100
Is there more risk today, at the lower price, or a month ago, at the higher price?
In today's Sunday New York Times, a commentary began: "While market risk appear to be climbing - stocks have lost ground for six consecutive weeks as the economy seems to have hit another soft patch..."
Most investors get nervous and consider markets to be riskier when prices are falling.
However, from a risk standpoint, investors would be best to consider a reverse in their psychology or how they view stock prices.
When prices decline, there is actually less future risk, as the expected future return is greater.
When prices are rising, people feel more positive about stock prices and seem more willing to invest. This type of thinking leads to the opposite of what is in their best financial interest. It emotionally feels "best," but leads to the opposite of a succinct investment philosophy: buy low and sell high.
Part of the value of working with our firm (or other good financial advisors) is to discuss this type of emotional psychology, as it relates to investing and making financial decisions.
If you take a long-term perspective, and can view stock prices more similar to buying retail goods (want to buy something when it is on sale, not at regular retail prices), you will have a better investment experience.
Like many things in life, this may be easier said than done. It can be hard to buy stocks in a declining or turbulent market, but that decision can be very profitable in the long run.
Cite: The Worry Meter May Overlook Some Warning Signs, New York Times, 6/12/11, Paul J. Lim
Note: This is my 9th post of the @projectdomino writer's challenge.This a challenge for bloggers and writers to post for 30 consecutive days, beginning on May 31. I will receive a prompt, or idea, from them each day, which I may use as the basis for that day's post. The above post is not based on today's Domino prompt. For more information @projectdomino, see my post on May 31, 2011.
Stock price of ABC Company: 1 month ago $ 100
Is there more risk today, at the lower price, or a month ago, at the higher price?
In today's Sunday New York Times, a commentary began: "While market risk appear to be climbing - stocks have lost ground for six consecutive weeks as the economy seems to have hit another soft patch..."
Most investors get nervous and consider markets to be riskier when prices are falling.
However, from a risk standpoint, investors would be best to consider a reverse in their psychology or how they view stock prices.
When prices decline, there is actually less future risk, as the expected future return is greater.
When prices are rising, people feel more positive about stock prices and seem more willing to invest. This type of thinking leads to the opposite of what is in their best financial interest. It emotionally feels "best," but leads to the opposite of a succinct investment philosophy: buy low and sell high.
Part of the value of working with our firm (or other good financial advisors) is to discuss this type of emotional psychology, as it relates to investing and making financial decisions.
If you take a long-term perspective, and can view stock prices more similar to buying retail goods (want to buy something when it is on sale, not at regular retail prices), you will have a better investment experience.
Like many things in life, this may be easier said than done. It can be hard to buy stocks in a declining or turbulent market, but that decision can be very profitable in the long run.
Cite: The Worry Meter May Overlook Some Warning Signs, New York Times, 6/12/11, Paul J. Lim
Note: This is my 9th post of the @projectdomino writer's challenge.This a challenge for bloggers and writers to post for 30 consecutive days, beginning on May 31. I will receive a prompt, or idea, from them each day, which I may use as the basis for that day's post. The above post is not based on today's Domino prompt. For more information @projectdomino, see my post on May 31, 2011.
Wednesday, June 8, 2011
Five Years: Financial Thoughts
Note: This is my 8th post of the @projectdomino writer's challenge.This a challenge for bloggers and writers to post for 30 consecutive days, beginning on May 31. I will receive a prompt, or idea, from them each day, which I may use as the basis for that day's post. For more information on this, see my post on May 31, 2011.
Many of these suggested prompts could be personal, but I'm going to write this one based on being a financial advisor.
Prompt: What would you say to the person you were 5 years ago? What will you say to the person you'll be in five years?
Do you see the pattern that follows?
5 years ago, June 2006: What advice would I give now, to myself, for 2006?
Provide financial advice to your clients that is always in their best interest.
Be sure that your clients have well diversified portfolios, based on their personal need, ability and willingness to take risk.
A portfolio of stocks should be globally diversified, which means that there should be a significant allocation to international stocks, emerging markets, small company stocks, as well as real estate. A diversified portfolio is not just the S&P 500 index fund.
Remember that over time, the vast majority of mutual funds and money managers do not beat their benchmarks.
Do not take risk with bonds. Only buy very high quality. Reaching for higher yielding, but less quality bonds, is not a good practice. Fixed income is the place to be very safe.
Expect the unexpected, and plan for it. Talk to your clients about bad markets as well as good markets.
Assist your clients in remaining disciplined, especially during down markets. If they do this, they will be well rewarded, after a market downturn, when the market rebounds.
It is impossible to accurately time the market. It is almost impossible to be right twice, as to when to sell (get out of the market) and then again (when to buy back into the market).
Rebalancing is crucial to long term success. When an asset class does well, sell some of it. Use the money to buy an asset class that has not done as well. This leads to buying low and selling high.
Plan with your clients (and have a simple written document), so your clients can achieve a sense of financial comfort and security.
Buy individual bonds or CDs of very high quality, only, which will work well if interest rates rise or fall. Bond mutual funds will not do well if interest rates rise.
5 years in the future, June 2016: What advice would I give now, to myself, for 2016?
Provide financial advice to your clients that is always in their best interest.
Be sure that your clients have well diversified portfolios, based on their personal need, ability and willingness to take risk.
A portfolio of stocks should be globally diversified, which means that there should be a significant allocation to international stocks, emerging markets, small company stocks, as well as real estate. A diversified portfolio is not just the S&P 500 index fund.
Remember that over time, the vast majority of mutual funds and money managers do not beat their benchmarks.
Do not take risk with bonds. Only buy very high quality. Reaching for higher yielding, but less quality bonds, is not a good practice. Fixed income is the place to be very safe.
Expect the unexpected, and plan for it. Talk to your clients about bad markets as well as good markets.
Assist your clients in remaining disciplined, especially during down markets. If they do this, they will be well rewarded, after a market downturn, when the market rebounds.
It is impossible to accurately time the market. It is almost impossible to be right twice, as to when to sell (get out of the market) and then again (when to buy back into the market).
Rebalancing is crucial to long term success. When an asset class does well, sell some of it. Use the money to buy an asset class that has not done as well. This leads to buying low and selling high.
Plan with your clients (and have a simple written document), so your clients can achieve a sense of financial comfort and security.
Buy individual bonds or CDs of very high quality, only, which will work well if interest rates rise or fall. Bond mutual funds will not do well if interest rates rise.
Conclusion: Do you see the pattern?
Many of these suggested prompts could be personal, but I'm going to write this one based on being a financial advisor.
Prompt: What would you say to the person you were 5 years ago? What will you say to the person you'll be in five years?
Do you see the pattern that follows?
5 years ago, June 2006: What advice would I give now, to myself, for 2006?
Provide financial advice to your clients that is always in their best interest.
Be sure that your clients have well diversified portfolios, based on their personal need, ability and willingness to take risk.
A portfolio of stocks should be globally diversified, which means that there should be a significant allocation to international stocks, emerging markets, small company stocks, as well as real estate. A diversified portfolio is not just the S&P 500 index fund.
Remember that over time, the vast majority of mutual funds and money managers do not beat their benchmarks.
Do not take risk with bonds. Only buy very high quality. Reaching for higher yielding, but less quality bonds, is not a good practice. Fixed income is the place to be very safe.
Expect the unexpected, and plan for it. Talk to your clients about bad markets as well as good markets.
Assist your clients in remaining disciplined, especially during down markets. If they do this, they will be well rewarded, after a market downturn, when the market rebounds.
It is impossible to accurately time the market. It is almost impossible to be right twice, as to when to sell (get out of the market) and then again (when to buy back into the market).
Rebalancing is crucial to long term success. When an asset class does well, sell some of it. Use the money to buy an asset class that has not done as well. This leads to buying low and selling high.
Plan with your clients (and have a simple written document), so your clients can achieve a sense of financial comfort and security.
Buy individual bonds or CDs of very high quality, only, which will work well if interest rates rise or fall. Bond mutual funds will not do well if interest rates rise.
5 years in the future, June 2016: What advice would I give now, to myself, for 2016?
Provide financial advice to your clients that is always in their best interest.
Be sure that your clients have well diversified portfolios, based on their personal need, ability and willingness to take risk.
A portfolio of stocks should be globally diversified, which means that there should be a significant allocation to international stocks, emerging markets, small company stocks, as well as real estate. A diversified portfolio is not just the S&P 500 index fund.
Remember that over time, the vast majority of mutual funds and money managers do not beat their benchmarks.
Do not take risk with bonds. Only buy very high quality. Reaching for higher yielding, but less quality bonds, is not a good practice. Fixed income is the place to be very safe.
Expect the unexpected, and plan for it. Talk to your clients about bad markets as well as good markets.
Assist your clients in remaining disciplined, especially during down markets. If they do this, they will be well rewarded, after a market downturn, when the market rebounds.
It is impossible to accurately time the market. It is almost impossible to be right twice, as to when to sell (get out of the market) and then again (when to buy back into the market).
Rebalancing is crucial to long term success. When an asset class does well, sell some of it. Use the money to buy an asset class that has not done as well. This leads to buying low and selling high.
Plan with your clients (and have a simple written document), so your clients can achieve a sense of financial comfort and security.
Buy individual bonds or CDs of very high quality, only, which will work well if interest rates rise or fall. Bond mutual funds will not do well if interest rates rise.
Conclusion: Do you see the pattern?
Monday, June 6, 2011
A Diamond Lost Hurts All of Us
This post is my 7th entry since I started the Blogger Challenge on May 31. I was planning to write on a @projectdomino prompt tonight, but I read something more important in the New York Times online.
Unfortunately, due to poor decisions by a number of Republican Senators, a Nobel Prize winning economist is withdrawing his nomination to the Federal Reserve. Peter Diamond, nominated by President Obama, wrote an OpEd piece in the New York Times, announcing these intentions ("When a Nobel Prize Isn't Enough" http://www.nytimes.com/2011/06/06/opinion/06diamond.html?_r=1&src=ISMR_HP_LO_MST_FB .
This is a huge loss for our country. It represents politics over skill and experience, which is very sad, given the urgent issues which face our country. Mr. Diamond is an expert on structural unemployment and the Social Security system. Those are two of the most important issues that need to be addressed by the Federal Reserve, and our country in general. Having an expert on these issues on the Fed would provide Diamond with a voice to be heard, to set the national agenda in working on these matters.
Yet this highly esteemed MIT professor has been deemed "unqualified" by a number of Senators, particularly Senator Shelby of Alabama. Shelby cites his lack of experience in developing monetary policy. The Federal Reserve should be the "best and brightest" of our nation's economists, working together to address critical economic issues. His areas of expertise are vitally important to developing the foundations of monetary policy.
The Federal Reserve is missing a number of members. This is unfortunate and hopefully the vacant positions will be filled with other, very well qualified people.
Unfortunately, due to poor decisions by a number of Republican Senators, a Nobel Prize winning economist is withdrawing his nomination to the Federal Reserve. Peter Diamond, nominated by President Obama, wrote an OpEd piece in the New York Times, announcing these intentions ("When a Nobel Prize Isn't Enough" http://www.nytimes.com/2011/06/06/opinion/06diamond.html?_r=1&src=ISMR_HP_LO_MST_FB .
This is a huge loss for our country. It represents politics over skill and experience, which is very sad, given the urgent issues which face our country. Mr. Diamond is an expert on structural unemployment and the Social Security system. Those are two of the most important issues that need to be addressed by the Federal Reserve, and our country in general. Having an expert on these issues on the Fed would provide Diamond with a voice to be heard, to set the national agenda in working on these matters.
Yet this highly esteemed MIT professor has been deemed "unqualified" by a number of Senators, particularly Senator Shelby of Alabama. Shelby cites his lack of experience in developing monetary policy. The Federal Reserve should be the "best and brightest" of our nation's economists, working together to address critical economic issues. His areas of expertise are vitally important to developing the foundations of monetary policy.
The Federal Reserve is missing a number of members. This is unfortunate and hopefully the vacant positions will be filled with other, very well qualified people.
Can You Predict the Future? Blogger Challenge #6
Today's post is short, yet powerful.
Prediction is very difficult, especially about the future.
Niels Bohr, Nobel Prize winner, Physics
If you cannot predict the future, then how can you accurately select which stocks or mutual funds or money managers will be the most successful, consistently, for the long term?
You can't....or you have been very lucky. Even Warren Buffett would agree with this.
If this makes sense to you, then we predict that our wealth management strategy for investing will make sense to you.
Give this some thought. Then act.
Prediction is very difficult, especially about the future.
Niels Bohr, Nobel Prize winner, Physics
If you cannot predict the future, then how can you accurately select which stocks or mutual funds or money managers will be the most successful, consistently, for the long term?
You can't....or you have been very lucky. Even Warren Buffett would agree with this.
If this makes sense to you, then we predict that our wealth management strategy for investing will make sense to you.
Give this some thought. Then act.
Sunday, June 5, 2011
Financial Perspective Today: Blogger Challenge Day 5
Today, I've decided not to use the @projectdomino suggested prompt topic and to write about something I feel more passionate about.
To be successful in investing and build long-term wealth, one must have the proper perspective and frame of mind.
The financial markets have been choppy recently, particularly since the beginning of May. As we discuss financial matters with clients and prospects, many raise similar concerns.
People are concerned about many things: the economy in general, the price of oil, the US budget deficit and the national debt, overseas debt levels, unemployment levels, inflation, interest rates, etc. We share these concerns.
Some people look at all these problems and "decide" not to invest or make financial decisions now. This is not in their long-term best interest. As advisors, we recognize and try to emphasize the following perspectives:
We are realists, meaning that we understand these concerns, but are also long-term optimists. We realize that we cannot control these issues. We focus on the things we can control for our clients. However, we know that the US economy and the world in general can be very resilient, in the long run. Things tend to work out, over time. Consider the days and months after 9/11. We all shared huge concerns. Over the years, those fears lessened and travel and the economy rebounded. Resiliency.
We cannot predict the future. Thus, we cannot accurately predict the price of oil 3 months, 6 months, or 2 years from now. Thus, we cannot and do not make investment recommendations based on things that we cannot forecast.
We talk with our clients extensively, about any financial concerns they may have, both personal to them and/or these other outside factors. We then develop a financial plan and asset allocation policy that is appropriate for their personal circumstances. This helps them to move from "inaction" due to external factors to having a plan that they are comfortable with. This provides them with the ability to move forward, so they can be financially secure, and sleep well at night.
The facts prove that this is a good strategy, if you have the proper perspective and discipline. Staying on the stock market sidelines has not been a good strategy, if compared to a properly globally diversified portfolio.
The following figures may provide helpful perspective. These are for the S & P 500, which is an index of 500 large US companies. This is not a globally diversified portfolio, but useful to review.
2 years ago, June 2009 925
1 year ago, June, 2010 1,040
6 months ago 1,220
June, 2011 1,300
(Note: The above information for the S&P 500 is for illustrative purposes only and does not represent the financial performance of our firm or our clients.)
To be successful in investing and build long-term wealth, one must have the proper perspective and frame of mind.
The financial markets have been choppy recently, particularly since the beginning of May. As we discuss financial matters with clients and prospects, many raise similar concerns.
People are concerned about many things: the economy in general, the price of oil, the US budget deficit and the national debt, overseas debt levels, unemployment levels, inflation, interest rates, etc. We share these concerns.
Some people look at all these problems and "decide" not to invest or make financial decisions now. This is not in their long-term best interest. As advisors, we recognize and try to emphasize the following perspectives:
We are realists, meaning that we understand these concerns, but are also long-term optimists. We realize that we cannot control these issues. We focus on the things we can control for our clients. However, we know that the US economy and the world in general can be very resilient, in the long run. Things tend to work out, over time. Consider the days and months after 9/11. We all shared huge concerns. Over the years, those fears lessened and travel and the economy rebounded. Resiliency.
We cannot predict the future. Thus, we cannot accurately predict the price of oil 3 months, 6 months, or 2 years from now. Thus, we cannot and do not make investment recommendations based on things that we cannot forecast.
We talk with our clients extensively, about any financial concerns they may have, both personal to them and/or these other outside factors. We then develop a financial plan and asset allocation policy that is appropriate for their personal circumstances. This helps them to move from "inaction" due to external factors to having a plan that they are comfortable with. This provides them with the ability to move forward, so they can be financially secure, and sleep well at night.
The facts prove that this is a good strategy, if you have the proper perspective and discipline. Staying on the stock market sidelines has not been a good strategy, if compared to a properly globally diversified portfolio.
The following figures may provide helpful perspective. These are for the S & P 500, which is an index of 500 large US companies. This is not a globally diversified portfolio, but useful to review.
2 years ago, June 2009 925
1 year ago, June, 2010 1,040
6 months ago 1,220
June, 2011 1,300
(Note: The above information for the S&P 500 is for illustrative purposes only and does not represent the financial performance of our firm or our clients.)
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