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, 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 So they frame the problem in terms of how much can be withdrawn over a given period without running the balance to zero.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!