Milestones tell you where you are but they can’t tell you where you’re going

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Imagine you are driving a car down a lonely highway at night. You have no idea where you’re going or why you started driving in the first place. Because the sun isn’t out, and because you don’t have a compass, you have no idea which direction you’re going. It’s disorienting, but you have no choice but to keep driving- because at least if you keep driving, you know you’ll end up somewhere.

Then, all of a sudden, you see it: a green sign on the side of the road that reads MILE 32.

That seems encouraging, but a few minutes later, you see another sign that says MILE 33.

Then miles 34, 35, and so on. The brief spark of excitement you felt is gone, because it doesn’t take long for you to realize the truth:

Milestones tell you where you are. But they can’t tell you where you’re going. Read More

Sunk cost fallacy

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Have you ever made yourself suffer through a bad movie because, having paid for the ticket, you felt you had to get your money’s worth? Some people treat investment the same way.

Behavioral economists have a name for this tendency of people and organizations to stick with a losing strategy purely on the basis that they have put so much time and money into it already. It’s called the “sunk cost fallacy.”

Let’s say a couple buy a property next to a freeway, believing that planting trees and double-glazing will block out the noise. Thousands of dollars later the place is still unlivable, but they won’t sell because “that would be a waste of money”.

This is an example of a sunk cost. Despite the strong likelihood that you’ll never get your money back, regardless of outcomes, you are reluctant to cut your losses and sell because that would involve an admission of defeat. Read More

Inaction breeds doubt and fear

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Dale Carnegie once said: “Inaction breeds doubt and fear.  Action breeds confidence and courage.  If you want to conquer fear, do not sit home and think about it.  Go out and get busy.”

Those words have been on my mind lately because of what has been going on in the markets.  As you probably know, there has been a lot of volatility in recent weeks.  Many investors are worried about what the future has in store, and what all this volatility means for their hard-earned retirement savings.

My response: why sit around and worry when you can actually do something? Read More

Wish you could withdraw money from your 401(k)?

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These days, many pre-retirees save for retirement primarily through an employer-provided 401(k).  401(k) accounts can be a great savings tool, especially if your employer matches your contributions.  But there are occasions when relying on a 401(k) account isn’t the best option.

For example, some employers don’t match their employees’ contributions, which takes a major shine off these types of accounts.  Other 401(k)s have a narrow range of investment options to choose from, leaving employees dissatisfied and frustrated with the results they’ve been getting.  Many of these people would love an alternative, but don’t feel like there is one.

The good news is that there may indeed be an alternative.  It is called an “in-service withdrawal.”   Read More

The history behind Memorial Day

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As Memorial Day approaches, and as we remember our national and perhaps personal losses, I would like to share with you the history behind the holiday.

Memorial Day, originally called Decoration Day, is a day of remembrance for those who have died in our nation’s service.  There are many stories as to its actual beginnings, with over two dozen cities and towns laying claim to being the birthplace of Memorial Day.  There is also evidence that organized women’s groups in the South were decorating graves before the end of the Civil War: a hymn published in 1867, “Kneel Where Our Loves are Sleeping” by Nella L. Sweet carried the dedication “To The Ladies of the South who are Decorating the Graves of the Confederate Dead”*. Read More

A Changing of the Guard 

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The first quarter of 2015 proved to be one where the benefits of a diversified portfolio flexed its considerable muscle. Following 2014, where many asset classes trailed the U.S. Large Cap stock market, the first quarter of 2015 showed a change in leadership (according to return) among asset classes. The Standard & Poor’s 500 Index, the darling of many return-chasing investors, increased just 0.95 percent in the first quarter, disappointing when compared to other stock indexes that performed significantly better (see chart below). For instance, U.S. Small Caps, as measured by the Russell 2000, were up 4.32 percent, while International Developed Markets as measured by the MSCI EAFE Index were up 4.88 percent. Even bonds outperformed U.S. Large Cap stocks in the first quarter of 2015, posting a positive 1.61 percent return measured by the Barclays U.S. Aggregate Bond Index.

A Changing of the Guard
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Guess Who – The Answer Might Surprise You

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Being a great investor is incredibly hard. Don’t let anyone tell you otherwise. To illustrate this, we took a well-known investment and examined it over two time periods against the Standard and Poor’s 500 Index. The results were fascinating.

Been Down So Long

The chart below extends from 2009 – 2013. The blue line represents the return of the mystery investment (Investment B) and the orange line represents the S&P 500. If you compare the returns over this five year period, Investment B trails significantly. It translates to a cumulative underperformance of approximately 43 percent over the same time period. After watching the investment lose to its benchmark five years in a row, even the most disciplined investors would be tempted to cut their losses and launch this investment from their portfolios! Read More

Can Your Generosity as a Grandparent Come Back to Haunt You?

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Many of my clients are grandparents, while others look forward to the advent of the next generation of their bloodline in the not too distant future. Those that are already grandparents are convinced their offspring’s offspring are the most brilliant and talented the world has ever known. One can only hope these youngsters bring those traits with them right into adulthood. However, the one quality or attitude you as a grandparent do not want your progeny‘s progeny to bring into adulthood is entitlement, which can lead to laziness. You want them to put all that inherited brilliance to work, and have a wonderful life.

Of course, having worked hard for what you have and what you have to give and to perhaps leave behind, you want both your adult children and your grandchildren to enjoy things you could never afford. So as both a parent and a grandparent, it can – and for most of my clients it usually is – a difficult balancing act between wanting to shower your family members, especially those adorable grandchildren, with gifts of money to ease their path in life. Read More