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.

Wednesday, March 22, 2017

Trump and the "Fiduciary Rule"

Here's a nice opinion piece on the situation with the "Fiduciary Rule" and its potential blockage as it is on the verge of going into effect written by Mitch Tuchman of Rebalance IRA, "Trump's last-second swipe at an Obama retirement rule" (MarketWatch, 3/22/17).

The rule requires investment advisors, in particular  insurance companies and brokers, to act in the best interests of their clients when offering investment products and making investment decisions.

That they significantly affect investor performance in a negative way is supported by mountains of research. How? By charging 1% and higher to manage assets, putting clients' funds into the highest commission products that charge excessive annual fees and tacking on fees that are cleverly hidden.

And, all of this comes out in the wash. Most people don't read the academic studies on performance that track how active managers perform - just insomniacs and academics. Instead investors look at their accounts, read about markets hitting record levels and get a sinking feeling realizing that they are performing way below where they should be. Bluntly speaking, the fast talking fancy suited expensive brief case toters have sold  retirement dreams down the river - and people eventually get it.

And there is an ongoing push back. Investors are flocking to low cost, index funds and managing or considering managing their own assets. Many are moving to robo advisors and in the process disrupting the financial services industry. They are choosing to bet longer term on the entire economy whether it is U.S. or global rather that the touted ability of stock pickers and market timers.

This of course is what DIY Investor has been about for the last seven years and has referenced Buffett, Malkiel, Bogle, Ellis, Solin and others in the process.

For what it is worth, the whole set up of the movement of  retirement investing away from the defined benefit approach to the defined contribution, i.e. 401(k) played a major role in this enabling of the financial services to take advantage of those trying to plan for retirement. It enabled the complicating of the whole process which many saw as an opportunity to obfuscate the fee structure and take advantage of workers. In short, the average person was put in charge of their retirement but not given instruction on how to go about it!

In my opinion the same thing may be unfolding in the health care industry. It is important to understand a basic finding of behavioral economics: choice isn't always a good thing! This is worth keeping in mind when politicians puff themselves up and proclaim that the consumer will have more choices. Sleazy characters hear this and start to plan on complicating schemes that rip consumers off.

Wednesday, January 25, 2017

Retirees Don't Run Out of Money

Polls consistently show that the number 1 fear of retirees is running out of money. But rarely do retirees literally run out of money. It doesn't happen that Joe goes to Mildred and says "darling we've only got $100 in our account. What are we going to do?"

Instead, what people tend to do is run out of lifestyle. More typically Joe will go to Mildred and say, "honey, it looks like we can only afford to visit the kids twice this year instead of three times." And Mildred responds, "but Joe we are only 71, in good health, and my number 1 thing in life is seeing my grand children".

Of course, the academic literature needs to simplify and where possible interject the math. So they frame the problem in terms of how much can be withdrawn over a given period without running the balance to zero. The magic number of course, which is debated, is 4%. With a nest egg, the rule of thumb is that 4% adjusted for inflation can safely be drawn down.

Thinking about lifestyle rather than some percentage can be enlightening however. It gets pre-retirees to focus on what is important in their retirement years. How many times do you want to visit the children? How much does it cost to play golf constantly to realize your dream of reaching the pro tour? How big a house do you need to live in and how much does it cost?

In fact, many people will only have a satisfying retirement if they can continue in the same house they lived in when they had 3 or 4 kids at home. It is important, of course, to know this going in.

Then we also have the world travelers working off a so-called 'bucket list". Some people view their dream retirement as one whereby they will be able to take at least 3 major trips/year.

All of this leads to a type of bottom up approach. It suggests the idea that in approaching retirement a list should be made listing the important things that you want in retirement and their estimated cost.
This then can be used to see if the anticipated income stream satisfies the needs. A tricky part , of course, is to keep  medical needs in mind. A  couple's lifestyle can be upended by medical surprises.

Tuesday, January 24, 2017

On the Difference in Saving Rates

Ben Carlson at MarketWatch has produced interesting data on savings rates in

Opinion: How a slight edge in investing adds up to big money over time.

In his article he starts with a short story from Atul Gawande on how small changes have a big impact in the medical field where people look for big, miraculous changes. As an aside Dr. Gawande is one of my favorite authors and I highly recommend his

The Checklist Manifesto.

So, what is the impact of a small change in the saving rate? Carlson first looks at an example of a household income of $100,000 saving 10%/year and achieving an investment return of 8%. After 10 years this will produce a portfolio value of $132,822. Increasing the saving rate to 11% results in a portfolio of $146,104. He shows portfolio values for 1% incremental returns up to 15% where the portfolio value approaches $200,000.

It is important to note that the period is relatively short in terms of the saving horizon most retirement savers experience. In fact, most savers should be saving over a 30 year plus period!

Carlson also provides an interesting chart showing the impact of marginally increasing your saving rate. He starts, again, with 10% and then increases by 2% to 10.2%.

The big take away is that incremental changes have big impacts over longer periods of time (both in a person's health as well as their retirement program)  but it is difficult to appreciate them because they are barely noticed in the beginning.

Sunday, January 8, 2017

A Good Year For Retirees

2016 was a good year for DIY investor retirees in the investment markets. For a basic asset allocation using low cost ETFs the results were approximately as follows:

Large Cap 35% = +11.80% SPY
Small Cap 10% = +19.89% SCHA
International 15% = +4.66% IXUS
Bonds 35% = +2.56% AGG
cash 5% = +0.1%

The total portfolio return approximated +7.77%.

The important point is that it exceeded 4% (the benchmark 4% drawdown rate for retirement) plus the rate of inflation (approximately 2%).

The bottom line is that the DIY investor retiree took his or her drawdown and had more than they started the year with and they are one year closer to the grim reaper. What more could one ask for?

There are some assumptions in here of course. If you invested with an investment advisor who charged 1 percent or more and who invested you in active Funds that follow the
"hokey-poket style" of jumping in and jumping out you likely did considerably less than the above results.

In fact, the above portfolio could have easily been set up on 1/1 and the DIY investor retiree set about enjoying his or her retirement to the fullest. Let the hair pulling over the UK leaving the EU and the Trump election with the barrage of analysis over the stream of tweets to others.

And, oh yes, the grim reaper part is no big deal either. Everyone is one year closer, retiree or not. It is just that many retirees know it and appreciate their time a bit more because of the fact.

Have a great and prosperous New Year and enjoy the ongoing 3 ring circus. As long as they don't get us into a nuclear war it should be pretty entertaining!