Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Tuesday, December 6, 2016

A Great Gift

Recently I received a call from a young man seeking my advisory services. As an advisor my satisfaction comes from helping people get on a path to a successful retirement. This means steering them clear of high priced advisors who underperform, avoiding costly Funds that overcharge, and ensuring that the size of their nest egg will be sufficient to produce the income they need in retirement.

But this young man was a different case than I usually handle. He had just gotten out of prison on drug related charges and while in prison had read "Millionaire Teacher", which he found in the prison library, by Andrew Hallam. By reading the book he had come to understand how people build wealth by saving and investing intelligently. The book inspired him to do the same and he enlisted my services to get going. Full disclosure: I, along with a couple of other advisors, are mentioned in the book.

He related to me how his parents and entire family are poor but he had attained a job and was primed to start investing on a regular basis. To say the least this was one of my most satisfying consultations.

But the bottom line here is receiving the methodology. Admittedly, there are a number of books that describe how to invest in low cost Funds, allocate assets, and rebalance as needed. "Millionaire Teacher" is one and it is a good one. It is well written and can be read in a couple of weekends.

In my opinion it is a great life changing gift, especially for the young couple ( many of whom are financially illiterate) starting out in the professional work world. But many in mid-career find it useful as well.

So, I suggest instead of showing up with the soon to be consumed bottle of wine at the holiday party or putting a DVD of "Deadpool" under the tree consider "Millionaire Teacher".  It is an excellent choice for the budding DIY investor. As this blog and many others have harped on for a long time DIY investing done intelligently can save huge amounts and  increase the size of the nest egg over longer periods of time.

For additional background check out Andrew Hallam's website.

Wednesday, November 16, 2016

Can You Retire Early?

Here's a neat little chart from businessinsider "How close am I to early retirement"? Just find your income level and then the difference between your spending and saving. The answer as shown in the chart is how long it takes to build a next egg you can retire on by taking the magical 4%/year. Do this and you won't run out of money.

Simple? Yes, but useful as a general guide.

The problem is tricky as I've written several times on this blog. You've got inflation, market performance, how long you will live, medical costs and all sorts of unknowns. Some people take more comfort in getting complex analyses which produce Monte Carlo scenarios etc. To me simple is better. But it is very important to revisit the issue every couple of years at a minimum to see where you stand.

Some people target a number. For example they might have $1 million as the value of their nest egg at which they can retire. A problem here is that the number will be hit when the market is at a high point. I had a distraught individual who came to me after he had retired in 2000 and then went through the bust and had to go back to work. He then retired after the market hit a  record high in 2007 and then experienced the 2008 down 37% market. Needless to say he was at wit's end!

One way to approach this is to consider 4% of 80% of your portfolio. Can you have a nice retirement off of this? It may not be ideal but would it be ok? For example, if your nest egg is $1 million then 4% of 80% (.04 * $800,000) would be $32,000. If this would be ok (combined, of course, with Social Security etc.) then you could withstand a downturn in the market.

But back at the chart, what I really like is the out front emphasis on income and sending. The gap is what is key and it is important to not get lost in the weeds with all the other moving parts!

Saturday, November 12, 2016

What's Next?

Ok, so you've listened to Bogle and Buffett, you've read Bernstein and Malkiel. Now you want to get started investing in low cost index Funds. You've got numerous accounts: 401(k)s, IRAs, taxable accounts etc. You've got capital gains to think about and a host of questions on how to get going.

My suggestion is to find a Registered Investment Advisor (RIA) you can work with. This is code for "who is an adherent of the low cost index Fund approach".  If you (1) have made trades and know what ticker symbols are etc., (2) can withstand volatility in your portfolio and (3) are willing to spend some time continuing to be educated on the investment process as it relates to creating a retirement
"nest egg", then you are likely a good candidate for hourly consultation or having the RIA invest for a short-term period to set the account up and then doing your own investing. From the start you save advisory fees of 1% to 2% as well as avoid high cost Funds that tend to underperform the market.

In my practice I do a session for $160. During the session we typically Skype and look at the investments, talk about goals, talk about how big the nest egg should be saved at various ages, how much should be saved, risk tolerance and Funds to be invested in. Sometimes we go over the process of rolling over 401(k)s, withdrawal strategies etc.

Many times this is enough to get the do-it-yourself investor headed in the right direction. Other times I manage assets for a short term period at a low rate of 0.4% per year. If for instance the account is $600,000, I charge $600 for the first 3 months. If at that point the client is ready to take over then that's it - no further charge. Typically, the client will schedule a session for $160 approximately 12 months later.

Some clients of course have me manage their assets on an ongoing basis. They have other things in their daily work life or even in retirement they would rather do than to be managing their assets.

Why an RIA? Good question. Because RIAs are fiduciaries and as such are required to tell you if they have conflicts of interest in regards to compensation. That is, do they get commissions from referring you to people or selling products? Many are like me and the only compensation they receive is what their clients pay them. This is the primary factor in determining that RIAs do what is in the clients' best interests!

Thursday, November 10, 2016

Market Reaction to Trump

This from Yahoo Finance, "How Wall Street is trying to make sense of the stunning stock market rally" 

Stock prices crashed as it became clear that Donald Trump would be elected the next President of the United States. And then they did a complete reversal to actually rally during the first trading day after the votes were counted.Just when you thought the stock market was starting to make sense, it goes ahead and does the exact opposite.The markets were supposed to get crushedAhead of Election Day, Wall Street’s stock market experts were in broad agreement that a surprise victory by Republican candidate Donald Trump would be met by a sharp sell-off, ranging somewhere between -3% to -15%. Yahoo Finance reported on this multiple times.

This is another example of the futility of trying to time the market. There also is some "recency bias" apparently going on. This is where investors give weight to what has happened in similar situations in the recent past. On this front not long ago investors saw the head fake from the Brexit situation whereby stocks dropped and then reversed sharply. 
Market time at your own risk.

Sunday, November 6, 2016

Can you find a growth fund that will return 12% over the long term?

Debt elimination guru Dave Ramsey argues that people should eliminate all debt and then invest in a growth fund that returns 12%/year. By the rule of 72 money doubles every 72/12 = 6 years. Sweet!

I, with just about everyone who is familiar with Ramsey, admires his work on the debt side. He has helped thousands get out of and stay out of debt.

But his investment advice is misleading and potentially harmful. Finding a Fund that averages 12% over the long term is like trying to find the next triple crown winner. Good luck! And as he further recommends taking 8%/year out of your nest egg can lead to the outcome that is most feared by retirees - running out of money.

Actually, people don't tend to run out of money - they tend to run out of lifestyle. Draw down at too great a rate and one morning you wake up and realize you can't visit the kids as often, you can't eat out as often, and (drat it!) you have to ask your boss at Wal Mart if you can get more hours!

But the good thing about living in the internet age is that it is fairly easy in most instances to research claims or for that matter just about anything you are interested in. People do this in many areas but not so much in finance.

For example, Google "Large Company Stock Returns" and you'll come up with a link that shows the following table:

This table is reported by Kiplinger and the data comes from Morningstar. These Funds are the top performers out of tens of thousands of Funds.

Looking under the 10 year and 20 year columns you see no 12% s. As you do your research you'll find that Ramsey uses the non sensical arithmetic average whereas the appropriate average is a compound annual number.

But the idea here extends beyond Dave Ramsey and his investment advice. Suppose you want to know what Warren Buffet suggests as an investment approach for the average investor. Or, you have an annuity and, like most people including those who sell them, you can't make heads nor tails of it. Just go on a good search engine and look them up.

Doing the research ahead of meeting with professionals is especially useful because once the jargon starts flying the will weakens and when it comes to financial products people just give in. To hammer this home think of going in to meet with an attorney to discuss setting up a donor advised fund. If you are like most people you may be a bit intimidated in meeting with an attorney. Do a little research and this stress will be reduced and you'll be able to follow the pros and cons as presented and in the end be able to make a better decision. It is all a benefit of living in the information age.

Thursday, October 27, 2016

Grant Cardone Shuns 401 (k)

Grant Cardone gave an interview on CNBC trashing the 401 (k) as a savings vehicle, "Self-made millionaire: Don't put money in your 401(k)".

If you're like me you're wondering "who is Grant Cardone"? Google his name and you find that he is a motivational speaker, specializing apparently in teaching people how to sell. In other words, he is a self promoter. If the thought is crossing your mind that we have too much self promoting already we are on the same page.

Mr. Cardone claims he made his first million at the age of 30. He was 30 years old in 1988. For the record, if he had $1 million in a 401(k) back then, invested in the S&P 500, today it would be worth approximately $8 million ( (1.07864 ^ 28) * $1.0 million).

I'm sure he is worth considerably more and could probably easily find out by buying the book he is promoting. I'm sure in his mind he can take people off the street and turn them into millionaires using his sales techniques.

All of this of course is quibbling about hypotheticals in my view. What I do have a problem with is the message to stay away from the 401(k) and try to become a millionaire. The planet is littered with people who have tried and failed and have no back up.

Look at like this. Kids spend the summer lifting weights, throwing a football through a tire and running wind sprints. Then the fall comes and the tryouts for quarterback are upon them and only one gets to be the starting quarterback. Similarly, kids take dance lessons, singing lessons etc. and then the tryout for the lead in the school play is held. One person gets it.

There is only one Tom Brady. Telling people to forget the 401(k) and seek a fortune by starting a business is like counseling a high school quarterback to try and become a low draft pick and be the next Tom Brady. I suggest having a back-up plan just in case.

Mr. Cardone states, "Why would I go to work, have my employer give me another $6,000 a year, and then take that money and send it off to Wall Street, where I can't even touch it for 30 years? 

The answer is pretty straight forward: because by doing so you are investing in the greatest wealth creating economy the world has ever known in the beginnings of the information age betting on entrepreneurs creating products we cannot even begin to imagine. To most people this makes sense when they realize that the day is coming when they will be 65 years old.

Monday, October 24, 2016

Can't Save? Think Again.

Probably the number one excuse for not saving for retirement is that people need every single penny of their paycheck. Most of us have been there and done that. This isn't just at the lower end of the economic spectrum but admittedly is most prevalent there. At least that's the most frequent response I get from people. The "I can barely make ends meet as it is, how am I supposed to make contributions to a 401(k) or an IRA " is a frequent refrain.

But the fact of the matter is people are already saving. It is forced saving. Out of every paycheck 7.65% is deducted for Social Security and Medicare. Think about this. If this was a choice I would be willing to make a sizable bet that many people would opt out and take the 7.65% each paycheck. Clearly this would exacerbate the retirement crisis that is building in this country. Sadly, many people have to be coerced into doing what is good for them.

To hammer home the idea imagine the task of trying to find people, especially as you move down the economic spectrum who don't welcome with open arms their monthly Social Security payment.

As you think about this you realize that this retirement payment is made through the years as you pay off your student debt, take on a house mortgage, have medical problems, have car payments, consider college for the kids etc. In other words, through all the usual excuses for putting thinking about retirement on the back burner.

An important corollary to all of this is that saving is more important than market returns in building a retirement nest egg, especially in the beginning. But many people use the uncertainty of the capital markets as an excuse to shy away. Know this: saving dominates. In fact, as is widely stated savers who are building a nest egg should cheer a negative stock market which gives them an opportunity to buy in at more attractive prices.