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Transferring a custodial account set up under the Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) to a section 529 college savings plan can potentially result in a number of tax advantages.

UGMA/UTMA accounts are set up for the benefit of a minor. Anyone can contribute to the account, and the custodian (such as the parent or grandparent) retains control of the account until the minor reaches the age of majority. At that time, control passes to the child, and assets in the account can be withdrawn for any purpose. However, earnings on the account are taxed at the child’s rate (see below).

Taxes for unearned income in UGMA and UTMA accounts (2010 figures)

Child’s AgeIncomeFederal Tax Rate
Under 18 Yrs.$0-$9500%
$950-$1,900Child’s tax rate (usually 10% after deductions related to investment income)
More than $1,900Parent’s marginal tax rate
18 or Older$0-$9500%
More than $950Child’s tax rate (usually 10% after deductions related to investment income)
IRS Publication 929

Now, thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), there may be a better option for investors saving for a child’s college education: section 529 plans, which are state-sponsored college savings plans.

It’s easy to fund most 529 plans with assets from an UGMA/UTMA account. The minor is named as the beneficiary of the 529 plan, and the UGMA/UTMA custodian is considered the owner of the 529 plan until the child reaches the age of majority.

There are some disadvantages to such a transfer. First, investments to a section 529 plan must be made in cash. That means any assets in the UGMA/UTMA account must be sold before you transfer the assets to a 529 account. And if those assets have grown in value, the sale will result in gain that’s taxable on the child’s tax return.

These disadvantages, however, may be outweighed by the tax benefits of such a transfer. After the transfer, the earnings in the section 529 plan can potentially grow tax-free. That’s an advantage if the earnings in the custodial account were large enough to result in tax on the minor. In 2010, the first $950 in income from a minor’s investment is free of federal income tax, and the next $950 is taxed at the lower child’s rate (in 2010, typically 0% for dividends and capital gains, and no more than 15% for interest). But investment income over $1,900 is subject to the parents’ tax rate, which is usually higher.

Earnings in the section 529 plan will then be tax-free when withdrawn, provided that the money is used for qualifying higher education expenses. If money is used for other purposes, however, the earnings will be taxable and generally subject to a 10% penalty tax as well.

Finally, remember that as with any investment, section 529 plans offer no guaranteed rate of return. Moreover, out-of-state section 529 plans may have in-state income tax ramifications. Always ask for and carefully read a plan’s program description for complete information, including risks, fees and expenses.

We can help you develop a strategy to help achieve your long-term funding goals. Contact our office to find out how transferring assets from an UGMA/UTMA account to a section 529 plan can benefit you.

This article is not intended to provide tax or legal advice and should not be relied upon as such. It is a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax advisor for advice and information concerning their particular circumstances.


Divorce is prevalent in society. Older couples married for the second time often have their own children from a first marriage. Each wants to bequest things to their own children. Each in the couple may have his (her) own assets but one main asset might be owned by one of them. More often than not, that’s the house they’re living in. How can that house owner assure that his house goes to his children of a previous marriage while making sure his present spouse will always have their house to live in?

With the automatic way probate laws work, the spouse who dies earlier may lose all control of where his assets end up. Present spouses may not be on good terms with their spouse’s children. So, spousal promises to carry out wishes may wear thin as the years pass beyond a spouse’s death.

There is one device, though, by which a spouse can assure that his house will pass to his own children but after his present spouse dies. And that’s called the qualified terminal interest property trust (QTIP). He simply creates the QTIP trust making his own children the ultimate beneficiaries of it. His spouse benefits while she lives but her interest in it is terminated at her death.

The house-owning spouse funds the QTIP trust with assets that qualify for the unlimited marital deduction. This would include the house as well as anything else he chooses.  Any income that is generated in the trust must be paid to his surviving spouse – and only to her or else the marital deduction (i.e. what is put into the QTIP trust) would be disallowed. Use of the house would obviously be the surviving spouse’s right in this regard too.

Finally at the surviving spouse’s death, the assets in the trust (i.e. the house) are considered part of her estate for purposes of calculating any estate tax that may be due upon her death. Nevertheless, all QTIP trust assets are paid to his children. 

Because the QTIP trust assets are part of the surviving spouse’s estate, they get a step-up tax basis. This means their tax basis immediately jumps from what it was previously to their fair market value on the surviving spouse’s date of death. If the children decided to sell the house upon receipt of it, they’d have no capital gains tax on it because the tax basis would then be equal to it sales price.

Lastly, since the QTIP is a trust, it bypasses probate at the surviving spouse death.

Contact our office so we can help you with a QTIP trust.


Need more retirement income?  Tap into your rental property without selling it. Selling means paying taxes and losing your rental’s income and your future appreciation. If your rental’s value has appreciated since you bought it, you can get more money out of it two ways through refinancing. You will pay no taxes and maintain your property’s worth to you.

Lower interest rates since buying property
If interest rates have dropped since you originally bought or last mortgaged the property, you can refinance that loan in two ways. First, suppose you refinance only the present balance so that your monthly mortgage payments are reduced under a reduced rate. This reduces your rental monthly expense, giving you an increased net income for your retirement needs.

Second, you refinance but increase your mortgage balance so the new monthly payments are the same as the old payments. Of course, you can take the net increase of the new mortgage balance over the old one for cash, and your monthly expense remains the same. Since this money comes from borrowing, it triggers no taxes. It is yours to spend or reinvest elsewhere – as in bonds – for more monthly income.

Higher rental income for improvements
Even if interest rates are about the same as for you present mortgage, you can create more money from higher rents by improving or refurbishing your rental property.  You still need to refinance your rental to a higher mortgage balance. If interest rates are the same, this will increase your monthly payments. But if you use the excess loan money to improve the property, you can justify increasing the rents. 

Depending on your situation, the increased rents may more than offset the extra mortgage payments, giving you a net increase in income. Or, you may not have had to use all the excess mortgage balance for improvements. In that case, your increased mortgage payments may be balanced by the increased rent you charge. So you can pocket the cash from the leftover loan balance – after paying off the improvements and the old mortgage.

Of course, if the refinancing interest rates in this second scenario are lower than the original loan, you will have all that much more money to use. 

In each of these cases, you have increased your cash or income, yet maintained your rental property for its future appreciation and future rental income. Note that refinances will incur fees and commissions and refinancing for more than your current balance will increase your debt, which may not be appropriate

Contact our office so we can show you current mortgage rates and how you may take advantage of your property’s equity.


Imagine an investment account that grows tax free and you can take as much or as little out of it for as long as you live. That’s what a Roth IRA is! Unlike a traditional IRA, though, you can only put money that has already been taxed into a Roth IRA.

A Roth IRA gives you a few benefits over a traditional IRA. First, you are not subject to the minimum required distribution rules of the traditional IRA, which is geared to depleting it while you live. Second, having to take money out for you traditional IRA undermines the compounding growth of what you have invested in it. Third, because you do not have to take anything out of a Roth IRA, it is an ideal long-term saving vehicle for tax-free growth of your investment. And fourth, whatever you take out of it is tax free forever.

The chart shows how fast a $100,000 investment can grow in a tax-free account for two hypothetical annual growth rates of 5% and 7% annually over 20 years. The illustration is hypothetical in nature, does not represent any specific investment, does not account for any fees or expenses associated with an actual investment, but if it had, returns would be lower and must be included.

These benefits mean that if you can delay taking money out of it for a number of years – as the chart shows – you can take advantage of the tax-free growth it can give you. Then take tax-free use of the money when either you or your spouse wishes.

And it can grow tax-free even for your designated Roth IRA beneficiary. When he receives it, he will be required to take a minimum amount out each year based on his life expectancy, but it will still as a tax-free distribution.

What is the price for this benefit? You need to pay tax on any money you put into it. You can convert your IRA holding – as much as you wish – to a Roth IRA, but you need to pay the tax on what you roll into the Roth within the year of rollover. While the conversion to a Roth was previously limited to those with an adjusted gross income of $100,000 or less, as of 2010, there is no limit and anyone may carry out a Roth Conversion.

According to IRA single life expectancy, you have statistically 21 years left when you are 65. The chart shows that an untaxed investment only takes 10 years to double under a hypothetical 7% annual growth rate. The trade off between converting your traditional IRA to a Roth or leaving it alone until you’re 70½ and then paying the tax on your distributions, depends on your retirement income level and your ability to defer your Roth investment for later use.

Contact our office so we can help you decide if converting to a Roth IRA is best for you.

Information in article taken from IRS publication 590.


The stock market during the past 18 months has been one of the most devastating any of us can recall.  Trillions of dollars in investor’s portfolios has vaporized.  Millions of Americans at all stages of life have been shocked by the massive losses in their investment accounts.  Most investor’s had no idea about to the amount of risk they were taking and the corresponding extent of loss exposure they had.  And yet today, when it comes to fixing their investment portfolios, many investors remain in denial about correcting the problem:  “I’ll Stop When I Get Even.”  An old Chinese proverb once defined “Insanity” as:  “Continuing to do the same thing(s)…and expecting different results.” 

Most investment advisors today are recommending clients remain disciplined and not sell out at the bottom and lock in permanent losses.  I emphatically agree, but, and this is a big but, only if you are properly allocated and diversified to begin with!  Some things are NOT coming back…EVER.  Look at the Nasdaq, which today is at about 1,600, at its peak in early 2000 it approached 5,500 just before the Tech Bust.  How many examples can you recall of once prominent companies, household names, that are now extinct?  Names like Enron, WorldCom, Lehmann Brothers, Bear Stearns, and countless others that have been forced into sale or liquidation.  The simple fact is any, and I mean any, individual stock or company can go to ZERO.  Allocation and Diversification are the keys to successful investing.  Not just among a few stocks or mutual funds.  The portfolios we recommend provide exposure to more than 14,000 companies in 39 countries around the world.  Certainly some of those now extinct companies I referred to above were contained in our recommended portfolios, but the exposure was minimal as a result of the vast diversification over more than 14,000 companies.

The Point!  Is controlling risk important to you?  Most investors answer ‘Yes” to this question, as it should be.  But even though most investors know risk is important, few are able to answer my next question.  Can you show me an academic number, a study, a statistic that shows the amount of risk and volatility in your portfolio?  Most investors don’t even know you can measure volatility.  And the next question is, if you can’t actually measure risk in any meaningful way, is there any way you can control it?  The resounding answer is – NO!

In most cases investors have never been provided with any meaningful way to compare and contrast the risk inherent in creating and managing differing mixes of assets in their portfolios.  It’s no surprise that most investors were blindsided by how much their portfolios dropped in the past several months.  They had no idea they could lose that much money because they were never shown or given any statistical tool for understanding it.  There is a prudent academically meaningful way to measure volatility, its called standard deviation, and prudent investors need to know what this is.

 I have observed investors who have lost large sums of money, but vehemently defend their portfolio decisions and deny that they lost an money at all.  Much like the gambler who returns from Vegas and brags about all the money he made, but “forgets” the losing nights.  As humans, we tend to selectively remember the wins and intellectually deny the losses and give ourselves more credit than we deserve.  Psychologists call this phenomenon “hindsight bias” and in the field of investing it reigns supreme.

The next question I’ll ask is, “If you took imprudent risk to get where you are today, is this something we need to solve?  Is it a problem that needs to be addressed?”  And then, the imprudent response, “I want to fix the problem, but I’ll stop when I get even.  I had a million dollars, it’s down to $500,000 (or $400,000 or $300,000) and when it gets back up to a million dollars, that’s when I’ll stop.”  And you can sense the compulsion and the obsession in their reply.  Very much like the gambler who’s down $10,000 in Vegas, who says he’s going to stop when he gets even.

And then, I like to ask the investor:  “When is the Best time to be Prudent?”  And the inevitable response is:  “It’s always the right time to be prudent.”  And that’s exactly right!  If imprudent risk-taking and speculation has cost you money, the worst thing that you can do is continue to participate in imprudent, speculative, and such risk-taking activities going into the future.  So why do people often insist on continuing their imprudent behavior?  Because to admit there’s a better way, they, in effect, have to admit that they were originally wrong.  To admit that our own behavior or decisions were ill-founded in the past is threatening to the ego.

“If only it would come back,” many investors subconsciously muse, “Then I could feel vindicated in my actions and solve the problem.”  This fantasy that everything will soon come back and everything will be OK is often at the root of the investor’s malady.  Don’t fall victim to this trap.  The opportunity here, to avoid this trap, is to realize that you are not your decisions, and just because you made an improper decision in the past, does not mean that you are less of a person, or less intelligent.  As a matter of fact, it’s a sign of intelligence and growth to solve and put an end to a destructive process when you become aware that one exists.  

If somebody could really help you pick the best stocks and forecast which way the market was going to go, all you would need to do is look at a commonly available ranking system and see which manager had done it in the past, and give all of your money to them to repeat their performance and you could do this with very little real thought or self-introspection.  If someone could actually do all this stuff, life would get real easy as far as investing is concerned, because you would be making 20%, 30%, 40%, or 50% a year with no risk.  And who wouldn’t like that?  But it’s kind of like a belief in Santa Claus.  It’s just not founded in reality.

Investors are often sucked-in by the illusions, fantasy, and addictions of gambling while they are being led to believe by the brokerage firms that the odds are really in the investors favor. 

You can be a successful investor by utilizing the proper academic and statistical tools.  Watch for the premiere of our upcoming movie “Navigating the Fog of Investing,” it’s a must see if you’re serious about growing your wealth and achieving true peace of mind about your financial future.   If you’d like more information about how markets work and our academic based investment philosophy contact our office.  You can’t blindly entrust your financial future to anyone else, it’s up to you!

Run date:  01/23/2009


It’s one of the most important questions a couple will face in their relationship but it so rarely gets asked until a relationship is well underway – should we pool or separate our money for investment?

The answer is as unique as the both of you. But there are some critical facts and some questions to consider as you develop a financial strategy for a lifetime.

Pooling can be a great idea after a marriage because the both of you are legally bound together, so why not bind your finances for potential maximum return? Many financial experts believe it’s a good idea for the simplest of reasons: The bigger the pile of money you two can gather, the greater the potential for financial gain with the right advice.

But there’s more to it than simply combining your assets.  Pooling your investment dollars should produce not only shared decision-making, but shared awareness of everything going on with your finances for a lifetime. It’s the kind of cooperation that will not only benefit you all the years of your marriage, but also provide a surviving spouse the knowledge to function if the other dies suddenly or is incapacitated.

It’s a move that woman need to consider in particular – it’s to their advantage to maximize the total investment pie because chances are they will be the lower-earning spouse, as they may go years without income if they stay home to raise children. And if the marriage breaks up – as roughly 40 percent of them do these days – she’ll need extensive assets to prepare for a retirement that will be statistically longer than her husband’s.

But how about a couple that wants to plan separately? The first question is: Why? There may be compelling reasons – for instance, one spouse has assets he or she wishes to protect from another spouse engaged in a high-risk business proposition. Others may have significant inherited family assets that need to be protected for heirs from potential loss in a divorce.  Or, in the case of second marriages, each spouse has separate assets they bring into the marriage and desire to preserve for their respective children.

These questions and more are a good reason for a couple planning to marry to sit down with a trained financial coach to go over their respective and combined goals for home ownership, retirement, kids’ college savings and various other lifestyle goals. A visit to a CPA and relevant legal professionals makes sense before the wedding as well.

Things to consider:

What approach will get you to your goal faster? Young people starting out literally need to save every nickel to save for a first home. It makes sense to figure out how much you can jointly put aside and where to invest that money based on your risk tolerance.

How can your employer help? Obviously max out on your 401(k) and other retirement savings options – particularly if there’s significant company matching involved, but check to see if your other benefits will do more for you and your spouse. See if joining your spouse’s health plan might be a better value than going it alone on your respective plans. If you have a health savings account that your spouse hasn’t, see how you can make that a part of your overall joint investment strategy. Also, don’t forget employee discounts that might cut your overall household spending. 

Let your competing investment styles…compete: There are plenty of studies on this, but they seem to hold steady: Men tend to take more investment risks, women seem to be risk-averse. One of the advantages to working with a trained financial coach is not only their ability to make solid investment suggestions for you, but to identify the differences in your investment approaches and find compromises that work best for the both of you.

Talk: Talk about your financial expectations and what goals you’d like to achieve. Talk about what you’re afraid of. And most important, talk about your investment goals, your credit rating and score, any troubles with credit in the past, including bankruptcy, and engage the services of a financial coach to formulate an investment policy statement that matches your individual or collective risk tolerance. Oh, and if you survive these initial discussions, make a promise to talk about money once a month.  Contact our office to meet with a financial coach, develop an investment policy statement,  and achieve true peace of mind about your family’s financial future.


Are you caught in the seven deadly investor traps?  Do these traps sound familiar?

Trap #1: Gambling with your money

I’m not saying that all gambling is bad. If you enjoy taking some disposable income and going to Vegas, or buying a lottery ticket, and it is money you can afford to lose, it may be an enjoyable activity that is valid for you as an individual. Where I take issue is when people gamble and speculate with the financial wealth that they need for their retirements and for their futures. Simply said, Don’t gamble away your investment capital.

Obviously, not all investing is gambling because the brokerage community, news programs, mutual funds, and magazines all blur the lines that separate speculating, gambling and investing, most individuals are speculating and gambling with their money – and they don’t even know it. They actually mistake gambling and speculating for prudent investing. How does this happen?

It happens because the media and the financial community have formed an “unholy alliance.” You often turn on a news program and see “experts” and analysts talking about their forecasts for the future, or what stocks they like; they’ll actually say what to buy, what to sell, what to hold, and so forth. This is the infamous “Buy, Hold, or Sell” recommendation. The media needs these types of recommendations because that’s what gets people to tune in. They need highly speculative, adrenalin-driven, or fear-driven reports, and stories to keep people watching and keep the advertisers happy. Who are the advertisers on these pseudo news-investing programs? Many times, they are the very same companies that provide the experts to begin with.

This is a mind boggling conflict of interest, and yet it goes on every day.

But the two can be easily confused. Every day investors take imprudent risks with their investment capital.

There are three types of speculating and gambling with your investment capital that you must guard against.

1. Trying to pick the best stocksWhat’s the next hot stock or group of stocks going to be? This includes stock-picking or even buying a seemingly diversified group of 100 or fewer stocks and holding them for several years. If you hire a manager who tells you what the best stocks are, such as a mutual fund, the manager often practices stock picking. In this instance the average turnover in American mutual funds is 100% per year. That means they are selling everything, wiping it all out, and buying all new stocks once every year. That happens year after year, after year, and they’re doing it with your money, without your knowledge.

2. Trying to time the marketWhen assets are moved in the portfolio, based on a forecast or prediction about the future, this is market timing. For example, you’ve become convinced by economic forecasts that the market is heading down over the next twelve months. You decide to sell your stocks and put all of the money into cash. That is market timing! Market movements are random. No one knows what the market will do tomorrow or over the next twelve months. It bears saying again:

nobody knows with any certainty, and if they did they wouldn’t tell you!

Let’s look at another example. Because of a war, you or your broker predict that international stocks are going to lose big, so you move all of your stocks into the United States . Once again, this is market timing. This doesn’t “feel” like speculating. It often feels like wise stewardship of your assets. If over the last two years, you have watched your portfolio take large losses in any one asset category, and every news program, investing magazine, and stock broker says this is the time to get out – it feels like prudent investing. Nothing could be further from the truth. In many cases, if not most, staying disciplined and staying the course is the best thing to do. That assumes that you currently have a prudent mix of assets. This is a huge assumption, because most people don’t.

3. Track record investingThe last way you know you’re gambling and speculating with your money is track record investing. Track record investing entails going with the manager, much like betting on a horse that had stellar performance in the past. The manager might have 5, 10, 15, or 20 years of beating the market and you’re hoping that he’ll continue to do that into the future. The vast preponderance of evidence shows that you might get lucky and beat the market, but academic studies prove that most likely you would achieve less than a simple market return.

All three of these types of speculation entail a forecast. Someone is trying to forecast and predict what will happen in the future. Whether you yourself are doing it or you’ve paid someone else to do it doesn’t really matter, because in my view it’s still speculating and gambling with your money, and they get paid big bucks for doing it.

Trap #2: Mistaking a lot of “stuff” for true diversification

Investors believe that if they have a lot of items on their statement, they are diversified. So, for example, if an investor goes out and buys a collection of one hundred different stocks, he might think when he gets his statement, “Wow, I’m really diversified. Look at all these companies.” In one sense, this hypothetical investor does have some diversification. If any one company goes under, the rest of his or her holdings could save the portfolio. But in a greater sense, this type of portfolio could have far more risk than an investor could ever imagine.

For argument’s sake, let’s say that all of those companies are in one asset category, such as the S&P 500. Given anecdotal evidence, the investor is told by his broker that these are very large and stable companies. What the investor is not told, is that because all of these companies are in only one asset class, that they tend to move in a step-rate fashion, and when one crashes they all tend to crash together. So, when that market crashes, chances are the investor is going to lose massive amounts of money. The largest, supposedly safest U.S. stocks that make up the S&P 500 lost over 43% for the three year period starting January 1, 2000. Why? Because the vast majority of the stocks move together! Even owning 500 stocks does not mean you are prudently diversified.

Many Americans fell into this trap in the early 2000s because on the advice of brokers, planners, and the media, they loaded up on large U.S. companies and technology stocks.

The vast majority of them felt and believed they were diversified. They were not.

The United States stock market value was decimated to the tune of $8 trillion at the beginning of the new millennium. This was money that investors were counting on for retirements and the stability of their futures. When I meet with investors, I ask them “Did you know you could lose so much money?” They always say “no”. Not a single investor or advisor I have talked to had any idea they could lose so much money. Investors in technology stocks saw even worse losses, as the tech index dropped more than 60% during the same period.

Most investors were aghast to see their portfolios tank.

They had no idea that could happen. They felt they were safe and protected. Most were not. Here the “crime” was not that the market dropped, because all markets rise and fall. The crisis was created because investors felt they were protected, and no one took the time or had the fortitude to show them what could, and eventually would, happen to their assets in poor markets. Investors were kept completely in the dark. Today, I work closely with brokers and planners to help them transition into coaching and help solve these problems for their investors. The sad truth is that most brokers and planners were themselves ignorant of the real risk inherent in the portfolios they recommended. Never mistake a lot of stuff for true diversification.

Trap#3: Mistaking activity for control

One of the investing commercials that makes me sick to my stomach is the one where the father is in the den, trading on the computer: “Buy, sell, blah, blah, blah.” And then, he asks Annie to come in. You are led to believe that Annie is his assistant or secretary, instead Annie is his four-year-old daughter. This commercial epitomizes the belief that if you buy and sell frequently you will be in control of both your portfolio and your own destiny. It portrays this buying, selling, and speculating glut as healthy, and even goes as far as intimating that if you trade at home you can be an even better father and family man. Perhaps a more accurate portrayal would highlight an ego-and-adrenaline-driven father taking time away from his family to compulsively trade.

At the risk of sounding bitter, the sound bite should be: “Annie, come in here and watch Daddy trade away your college money.”

We’re led to believe that if we buy and sell, buy and sell, buy and sell, we are in control. Here, we must explore the difference between real control and the false sense of control that trading, stock picking, forecasting, and track record investing create.

You will probably lose money by playing.

The more frequently you trade, a larger part of your return is sucked out of your portfolio in the form of commissions, market impact, and bid/ask spread costs. The more actively you trade, or your money is traded inside of a mutual fund, the greater the burden of trading costs on your portfolio and the lower your chance of beating the market or even achieving a market rate of return.

Trap #4: Believing all risk is equal

Many a time, we’ll see someone doing something very imprudent with his money, and we’ll say, “Well, you’ve got four million dollars, and you only own four stocks. That’s not very prudent.” The investor will say, “I know that it’s very high risk, but risk and reward are related; therefore, I’m taking all this additional risk and I will be rewarded.”

There’s a big hole in that theory. The fallacy is that all risks are equal.

For example, if I told you to take a nine iron in a rain storm, go stand on the highest hill of a golf course in the thunderstorm, and hold it up in the air for an hour, what is the expected payoff for that risk taking? Best case scenario, you could get wet, you might get a cold. That’s the best case scenario! There is no expected positive return from that activity.

In this case you’re taking huge amounts of risk. Are you expected to be rewarded? NO, you are not!

One very likely outcome is that you could be struck dead by lightning! There is no positive expected outcome for taking that type of risk.

In my belief, taking risk for its own sake is a crime in and of itself because it puts you in a position where your capacity to live fully and to enjoy your wealth is greatly diminished. Why would you ever do that? It is an act of self abuse. And yet, it goes on every day.

Another form of this is ignoring the sum of all outcomes when investing. For example, imagine that someone handed you a gun with one bullet in the chamber. It is a six shooter, so five of the chambers are empty. You are told that the chamber has been spun and no one knows where the bullet is. You are instructed to put the gun to your head and pull the trigger. If the chamber is empty and you live, you will be rewarded with ten million dollars. If the chamber contains the bullet, you will die. What would you do? Of course, investing is not identical to Russian Roulette. But, in both cases, all risks must be calculated and analyzed.

Indeed, you would be foolhardy at best to ignore the possible outcome that you would blow your own brains out.

That very real possibility must be factored into your decision making process. To focus only on the ten million and ignore the risk could have dire results. Yet this type of risk-taking goes on continuously when it comes to investing. Many investors, brokers, and planners ignore, to a large extent, examining and exploring just how bad and ugly things could get with any given investing strategy.

There is a distinct possibility that without an unbiased analysis you may not even know that the gun is loaded. Focusing on the sum of all outcomes means studying and analyzing all of the possible negative outcomes and factoring that into your decision making process. By incorporating this into your process, you can separate prudent risk-taking from imprudent risk-taking. In other words, separate true investing from market speculation.

Prudent risk-taking has a very high statistical likelihood that you will get additional return for that risk. Imprudent risk taking is risk taking that has little or no correlation with the likelihood that you will receive additional premiums or rates of return for taking that risk. This can be thought of as holding the golf club up in the rain storm. Distinguishing prudent from imprudent risk-taking in one of the investor’s primary jobs.

Trap #5: Trusting your Broker

Commercials and the credibility of large financial institutions lead investors to believe that the brokers work for them. The broker works for the broker/dealer, not for the individual! It’s the broker’s job to promote and sell what the broker dealer tells them to promote and sell. The broker/dealer has a vested interest to maximize the profits of its own stockholders. The broker works for the large institution, not for you. The interest of the bureaucratic broker/dealer may or may not be in your best interest. The stock broker is often not much more than a glorified salesperson. I am sure there are many honest well-meaning brokers who care about their clients.

There’s nothing wrong with that. Salesmen and saleswomen make this country run. There’s nothing wrong with the act of selling, and that’s the broker’s job, to sell product. That is why they are in business. If the investor understands that there is a built-in conflict of interest, I see no problem with this arrangement.


For those investors who do not fully understand the implications of this relationship, the results can be disastrous. If you go to buy a Ford at a ford dealer and you talk to a salesman, you know he’s going to push a Ford. You don’t expect to get unbiased advice from a salesman at the Ford dealership. But, when going to a broker, investors often expect unbiased advice. As if a Ford dealer would recommend a Toyota – guess what, it’s not going to happen. Investors just have to be smart enough to know where the conflict of interest is and understand that what may be good for the broker, may be bad for the investor.

Trap #6: Believing that this time it is different

By studying the history of markets, there is a clear pattern of this problem rearing its evil head over and over again. Lets look at the most recent case.

I call this the “New Paradigm” Problem.

In the late 1990s, we were all led to believe by the brokerage community, newspapers, media, the TV shows, the futurists, the financial magazines, and financial advisors that we were in a “new paradigm.” It was a very seductive and compelling story. It went something like this…

“We are in a new paradigm, and because the Internet is the most powerful technology known to mankind, it will shape the future of business and investing. It will reshape reality. It is making 21-year-old kids instant millionaires. Even janitors in many technology companies are getting rich from their stock options. It is the new wave. It is a glimpse into the future. And by the way, technology stocks have made huge returns over the last five years, so now is the time to get in.” It seemed like good logic. It was hard to argue with. This new brand of investing seemed to offer all of the upside potential with a low probability of loss. It was a genre of high returns with low risk.

It seemed like a “sure thing.”

This new paradigm belief and the allure of high returns with low risk caused investors to forsake true, broad-based diversification in favor of narrowly cast portfolios in one or two asset categories. Another thing that investors were highly encouraged to do was to buy all big blue chip companies. This was the storyline, “Buy all Fortune 500 stocks because these companies are big and stable and their stocks have done so well. You can’t lose.” This was the clear inference that the media and large financial institutions portrayed in the late 1990s into the early 2000s. It seemed to be the proverbial goose that laid the golden egg.

What’s the problem with that?

The problem is that it’s not based in reality. The reality is that any time you narrowly allocate your portfolio into one or two asset categories, you’re setting yourself up for massive losses. If all those stocks had gone up together, guess what? When the market goes down, as markets always do, you can lose massive amounts of your money. And that’s why the American public and the average investor were so decimated in the early 2000s. They had no idea they had loaded up on that much risk. The brokers didn’t tell them. The magazines didn’t tell them. The Wall Street Journal didn’t tell them. The analysts on TV didn’t tell them.

Very few championed the cause of the individual investor.

It was a feeding frenzy of massive proportions. And when it all came crashing down, questions began – “What happened? How could this happen? Isn’t this the new paradigm? What went wrong? We didn’t see this coming. What are we going to do now?”

Many mutual fund companies were also loading up with technology stocks in their mutual funds, and saw massive losses and redemptions in the early part of the 2000s.

But this is not the first time this has happened. This is nothing new. In fact, to an astute investor, it would have been an oddity and a surprise if this did not eventually happen. Why was everybody so stunned and surprised? This is the same thing that happened in the Great Depression. This is the same thing that happened to Japanese stocks through the 80’s. This is the same thing that happened to poor Isaac Newton when he lost all of his money in the South Sea bubble.

The new paradigm is really just the same old story.

This is why a truly knowledgeable investor requires not just an understanding of the nuts and bolts, the X’s and O’s of investing, but also an understanding of the human side, the emotions and instincts, that often sabotage the investing experience. To understand what it really means to be human requires a deep understanding of human history, science, philosophy, emotions, instincts, and human behavior. (You can learn far more about human behavior and investing by reading Don Quixote than you can from the latest copy of Money magazine.) Finally, to be a successful investor requires personal and self-knowledge mixed in with a healthy portion of rigorous honesty.

Trap #7: The “I’ll stop when I get even” reflex

“Is controlling risk important to you?” Most investors will answer “yes” to this question – as it should be. But even though every investor knows risk is important, few indeed, can answer my next question successfully. “Can you show me an academic number, a study, a statistic that shows the amount of risk and volatility in your portfolio? “ When I ask this question I am usually greeted with silence and a deer-caught-in-the-headlights expression. “I didn’t even know you could measure volatility,” is usually the meek reply.

Then, I hit them with the next question. “Well, if you can’t actually measure risk in any meaningful way, is there any way that you can control it? “ And of course, the next answer is a resounding – “NO”.

In many cases where investors are working with a broker or a planner, they have not been provided any meaningful way to compare and contrast the risk inherent in creating and managing differing mixes of assets in their portfolios. Often, investors are blindsided by how much their portfolios drop in down markets. They had no idea that they could lose that much money because they were never shown or given any statistical tool for understanding it. In effect, what people have been told by the brokerage community is that risk is very important.

And yet, frequently they give no meaningful way to actually quantify and identify what risk is acceptable to them.

What this often leads to are big losses in their portfolios. Having suffered the penalty, maybe their portfolios are down one hundred thousand, or two, three, maybe even millions. There is a prudent academically meaningful way to measure volatility. It is called standard deviation and prudent investors are wise to know what it is.

Emotionally, these losses are difficult to own up to.

I have even observed investors who have lost large sums of money, but vehemently defend their portfolio decisions and deny that they lost money at all. Much like the gambler who returns from Vegas and brags about making money at the blackjack table but “forgets” the losing nights playing craps. As humans, we tend to selectively remember the wins and intellectually deny the losses and give ourselves way more credit than we deserve. Psychologists call this phenomenon hindsight bias and in the field of investing it reigns supreme.

The next question I’ll ask is, “If you took imprudent risk to get where you are today, is this something we need to solve? Is it a problem that needs to be addressed?” 

And then I like to ask the investor the next question:  When is the best time to be a prudent investor?  And the obvious answer is always…NOW!  Contact our office to escape the 7 Deadly Investor Traps and protect your families financial future.  NOW is the time.

And then, here comes the seventh trap… ready? “I want to fix the problem, but I’ll stop when I get even. I had a million dollars. It’s down to $500,000 (or $400,000 or $300,000) and when it gets back up to a million, that’s when I’ll stop.”

And you can even hear the compulsion and the obsession in that statement. Very much like a gambler who’s down $10,000 in Vegas, who says he’s going to stop when he gets even.


Investing is usually done in an effort to have money to accomplish life goals and realize dreams.  Knowing we have money for the future can offer a sense of peace in the present.  However, instead of bringing peace of mind, investment decisions are often complex and confusing, leading to overwhelming feelings such as distress, worry, and anxiety.            

Have you ever worried about:

Getting high enough returns on your investments?

Maintaining your standard of living at retirement?

Affording high quality education for your children?

The next market crash?

The next market boom?

Missing out on the latest, greatest stock tip?

Making sense of all the investment information available?

Someone else having a better portfolio than you?

Not having money to care for loved ones?

Getting bad investment advice and, worse yet, paying for it?

Buying high and selling low?

If you can answer “YES” to any of these questions, you have been caught in the Investors’ Dilemma.

The Investors’ Dilemma is a cycle that explains why many investment decisions are driven by emotional and psychological biases that may be inconsistent with an investor’s long term financial goals.  On the one hand, investors want assets to grow to the point where enough wealth has been accumulated to meet personal financial goals.  Yet, for most, this will only happen by investing money prudently.  Therefore, investors need to make decisions and select strategies to maximize investments year after year.  Unfortunately, the actions investors frequently take are likely to be self defeating.  Let’s look at how each step of this counterproductive cycle interferes with an investor’s ability to develop and maintain a prudent investment strategy. 

Understanding the Investors’ Dilemma

1.  Fear of the Future

The cycle begins with a sense of uncertainty about the future, characterized by questions like: “Will there be enough money to maintain my standard of living?  How much do I need to save?  How do I know what is the best investment?”  The media and advertisers prey upon this fear of the future in an effort to sell products.

2.  Forecast and Predict

Because of this fear of the future, investors have a strong desire to comprehend and predict future events.  If someone could tell what is going to happen with inflation, long-term interest rates, share prices, overseas markets, then there would be less to fear about the future from an investment perspective.  Along these lines, investors are frequently convinced that someone has the information, power, and insight to forecast the future. 

3.  Track Record Investing

The primary method investors employ to convince themselves that the future can be foretold is through track record investing.  This means they look for stock managers who have performed better than the market in the past with the hope that they will continue to have superior performance in the future.

4.  Information Overload

In the past, gathering information was the best way to guide prudent investment decisions.  However, the current Information Age has created access to so much information that it is easy to become overloaded.  Investors feel compelled to understand all of the information:  the internet, books, newspapers, magazines, TV talk shows, advertisements, friends’ experiences, etc.  Indeed, instead of reducing fears, this deluge of information often intensifies doubts about investing.

5.  Emotion-Based Decisions

As investors, we never overcome our own humanity.  Even though most investors prefer to think that they make investment decisions based upon logic; typically emotions, such as trust, loyalty, hope, greed, and fear, drive our investment decisions.

6.  Breaking the Rules

There are three commonly accepted rules of investing: 10 Own equities, 2) Diversify and 3) Rebalance.  And, the golden rule of investing is: Buy when prices are low, and sell when prices are high.  It sounds simple.  However, when investors make decisions based on emotions, they wind up breaking these seemingly simple rules, thereby sabotaging their portfolios.

7.  Performance Losses

Performance losses means investors fail to capture the returns they expected.  Unfortunately, because investors so frequently break the golden rule of investing, they do not receive the rate of return they expected.  Investor performance does not equal investment performance.  When this effect is compounded over a period of years, an investor’s potential for reaching financial goals is significantly decreased.  Such loss creates additional frustrations and fears about the future, once again initiating the cycle. 

THE RESULT:  Not Enough Money and No Peace of Mind

The end result of the Investors’ Dilemma is not having enough money combined with worry, frustration, and anxiety about the inability to accomplish meaningful life goals.

For most investors, the Investors’ Dilemma remains undefined and continues over a lifetime.  The first step to operating outside of this cycle is becoming aware of it.  (You’ve already done that!)  The next step is to choose an investment philosophy in which you believe.  An investment philosophy is made up of three fundamental principles: Your True Purpose for Money, your Market Belief, and your Investment Strategy.  Choosing your Investment Philosophy involves defining these three principles for yourself.  It will take time, information, personal thought, and a gut check to determine what is true for you in each of these areas.  The time and effort involved in this process is more than worth it.  With a clear Investment Philosophy, the confusion, concern, and anxiety so prevalent in the Investors’ Dilemma can disappear.  The goal is to get one step closer to peace of mind about your financial future. 

For more information about defining your Investment Philosophy and achieving True Peace of Mind about your financial future contact our office.


According to the Kiplinger Letter, random federal tax audits are starting up again in October after a brief hiatus – about 13,000 taxpayers will receive letters. These are the infamous “line” audits, designed to provide a database to be used in designing guidelines for more efficient inspection of returns. Agents will reportedly be looking specifically for hidden or underreported income and exaggerated credits and deductions listed on Schedules C (profit or loss from business) and F (profit or loss from farming).

The government has been focusing for awhile on the increasing number of self-employed individuals. Even if you dodge the bullet for now, it’s always smart to be vigilant against the expensive and stressful possibility of a tax audit. A qualified tax professional can assist you in the preparation of your return to minimize the chances of an audit coming your way.

There are three types of audits:

  • Correspondence audits happen when the IRS sends a letter asking for clarification on relatively simple items. It’s usually handled and completed through the mail.
  • Office audits are conducted on the IRS’s turf. You meet with an examiner who wants to see documentation intended to answer their specific questions. It’s wise not to volunteer any other information beyond what they ask.
  • Field audits are the stuff of TV cop shows. That’s when the IRS comes to your home and starts nosing around to see why that Bentley is sitting in the driveway of someone who reported $28,000 in income last year. These tend to be pretty serious.

There are some obvious no-no’s that shift your return to the audit pile. The following measures won’t guarantee you’ll avoid an audit, but they’re key issues that the IRS focuses on when deciding which returns to target:

Messing up the basics: This is an obvious point, but remember to sign the return, add the Social Security Number on your check and double-check the math. Fill out every applicable line on the return, or better yet, get a tax preparer to do it since professionally prepared returns tend to be easier to read and understand because you’re paying qualified people to get it right. Bottom line — sloppy returns tend to draw scrutiny.

Rounding can be a problem: Precise numbers suggest precision. It’s always best to show conservatism to the IRS. Round down to cut off the pennies, but rounding up to the next hundred or thousand tends to draw attention.

Note sales of investments carefully: Anytime you sell stocks or bonds, the IRS and the taxpayer receives a 1099 noting the sale price. Your tax professional can go over the proper way these should be noted on your return. Also remember that income items such as interest, dividends and other sources of income are matched with the return from documents that are already on file with the IRS.

Scores are everywhere: In case you didn’t know, the IRS – like the lending industry – assigns you a score. It’s called the Discriminate Information Function (DIF), a computer program that compares, among other things, the deductions you’re taking against others in your income bracket. It’s the way an increasingly technology-driven IRS is screening for suspicious returns. One of the best ways to avoid a high DIF score is to report all income – don’t let yourself think that any amount is not worth reporting.

Be wise about itemized deductions: You should claim every deduction the law entitles you to, but a good tax professional can advise you of reasonable limits that are less likely to trip your return. In particular, the IRS looks for overblown charitable deductions – make sure you make cash contributions by check or credit card so there’s a record, and just make sure that all your donations have receipts or other acknowledgement from the charity – that’s a strict requirement of the Pension Protection Act of 2006.  If you do get audited, you need to prove the original value of the items donated and their fair market value.

Keep scrupulous mileage records: If you use your vehicle for work or business, keep a notebook or chart in the car so you can record mileage information as soon as you complete it. The records should list beginning and ending odometer figures, location and reason for the trip. Keep the same records for mileage claimed for medical expense and charitable purposes.

Watch that home office: Even though the government loosened restrictions on home office deductions in 1999, make sure you can substantiate that business area of your home if you’re asked.  If you receive any notice from the IRS or state treasury contact our office to review this matter.  


The recent volatility in the stock market has everyone a little jumpy – even folks who have worked with a trusted financial planner for years. But if you’ve never worked with a planner before, one of the first things he or she should do is make you fill out a risk analysis questionnaire.

Why is risk analysis important before you make decisions with your money? Risk tolerance is an important part of investing – everyone knows that. But the real value of answering a lot of questions about your risk tolerance is to tell you what you don’t know – how the sources of your money, the way you made it, how outside forces have shaped your view of it and how you’re handling it now will influence every decision you make about it in the future.

The most important thing a risk questionnaire can tell is what’s important about money to you. Trained financial advisers can determine your money personality through a process of questioning discovery. Planners can then guide investors within their money personality. Do you want certainty, are you willing to take a little risk or let it roll because “you can always make more of it?”

A financial planner tries to see through the static to find out what you really need to create a solid financial future. But it might make sense to ask yourself a few questions before you and your planner sit down:

  1. What’s important about money?
  2. What do I do with my money?
  3. If money was absolutely not an issue, what would I do with my life?
  4. Has the way I’ve made my money – through work, marriage or inheritance – affected the way I think about it in a particular way?
  5. How much debt do I have and how do I feel about it?
  6. Am I more concerned about maintaining the value of my initial investment or making a profit from it?
  7. Am I willing to give up that stability for the chance at long-term growth?
  8. What am I most likely to enjoy spending money on?
  9. How would I feel if the value of my investment dropped for several months?
  10.  How would I feel if the value of my investment dropped for several years?
  11. If I had to list three things I really wanted to do with my money, what would they be?
  12. What does retirement mean to me? Does it mean quitting work entirely and doing whatever I want to do or working in a new career full- or part-time?
  13. Do I want kids? Do I understand the financial commitment?
  14.  If I have kids, do I expect them to pay their own way through college or will I pay all or part of it? What kind of shape am I in to afford their college education?
  15.  How’s my health and my health insurance coverage?
  16.  What kind of physical and financial shape are my parents in?

One of the toughest aspects of getting a financial plan going is recognizing how your personal style, mindset, and life situation might affect your investment decisions. A financial professional will understand this challenge and can help you think through your choices. Your resulting portfolio should feel like a perfect fit for you!  Contact our office for more information on determining your Risk Tolerance and attainment of true peace of mind concerning your financial future.


Everyone knows that a crystal is used to look into the future.  Most of us realize, however, that you can’t make important life decisions based on an image foretold by a crystal ball.  There are three commonly espoused methods of investing that can be paralleled with gazing into a crystal ball.

Stock Picking – Finding company or industry stocks that are “under-priced” with the notion that they will provide superior returns in the future unrelated to risk.

Market Timing – Attempting to alter the mix of assets in a portfolio based on a prediction about the future direction of the market.

Track Record Investing – Assuming that the past performance of a specific provides pertinent information regarding its future performance.

Investors continue to believe that if they look long enough, hard enough and in the “right” places, they will discover a way to get massive returns on their investments without taking any real risk.  Deep in the psyche of the investing community at large is an assumption that there is a method whereby investors should be able to experience all of the gain with none of the pain.  This is what we call a “free lunch”.

Unrealistic expectations are indisputably one of the most common reasons that investors experience disappointment, anxiety and frustration about investing.  However, for the most part, these expectations may never be verbalized.  While an investor will react to the results of his portfolio based on an underlying expectation, he may never consciously recognize the expectation for what it is.  Therefore, it is helpful to gain greater awareness by exploring six reality breakdowns that typically cause investors to make poor investment decisions:

Hindsight Bias – Monday Morning Quarterbacks.  Knowing the outcome of some event makes it easy to delude ourselves that we, in fact, could have predicted the outcome with certainty, before the fact.  You can see hindsight bias at play whenever you hear someone say “I knew that was going to happen”.  It is a common place tendency, and we’ve all done it.  However, the fact of the matter is that none of us can predict actual outcomes in the future with any level of confidence.  Hindsight bias focuses on past events and lulls us into believing we had it all figured out.  The phenomenon of hindsight bias is dangerous in investing because it sets up unrealistic expectations for the future.

False Patterning – Shooting Streaks.  Just as sports fanatics can get caught up in an athlete’s apparent “hot streak’, investors are easily convinced that the market (or a certain investment in the market) is going to follow a particular pattern.  This tendency is potentially harmful in investing because it leads to a mistaken sense of certainty about what is going to occur in the future.  The simple fact that investment magazines continually publish and report on mutual funds’ performance is based on the illusion that past performance is related to future performance.  As documented by the esteemed economist Burton Malkiel, professor at Princeton University and author of  “A Random Walk Down Wall Street’, and as can be read in the fine print of most mutual  fund prospectuses or investment literature: “Past performance does not indicate, and is not a guarantee of future performance”.

Emotion-Based Decisions – Most of like to believe that we use logic when making important decisions in life.  We are taught to value reason, common sense, and sound judgment.  But, we are only human and inevitably emotions will creep into our decision-making process.  Using emotions in our decisions is not bad, in fact it can be very beneficial as long as we don’t use our emotions to distort the factual data.  When emotions drive the decision-making process, we invariably overweight the data that supports our emotions (or gut feeling) while simultaneously underweighting data that contradicts those feelings.

Investment Pornography – Investment information designed to appeal to investors’ obsessive speculation tendencies.  In the quest for peace of mind about investing, most of us turn to various sources of so-called expert information.  The most common places to seek understanding and enlightenment are the popular media: magazines, newspapers, books, TV, radio, and the internet.  These messages tend to be based on hype, rhetoric and manipulation.  Instead of offering knowledge and clarity, they often provide conflicting advice, useless propaganda and confusing analyses.  The financial media is often specifically geared to activate and intensify the instinctual urges which drive emotional decisions by the investor.  Think of it as “investment pornography.  Investment pornography is designed to sell newspapers, magazines, books and investment products.  Investors need to be cautious about believing what they read lest they wind up with a poorly constructed investment portfolio and very little peace of mind. 

Overconfidence – An undeserved sense of certainty, ability, or skill.  Just as we are likely to think we are “above average” drivers, we are equally prone to overrate our own ability to beat the market.  The research study by Dalbar helps explain why most investors will never beat the market.  Dalbar, Inc. is a leading independent financial services research firm that has conducted numerous studies concerning investor behavior.  Their most significant finding is that regardless of how well any particular investment may perform, the average investor is unlikely to realize the same return.  For example, while the S&P 500 earned 11.00% from 1984 to 2005, the average equity fund investor realized an annualized return of 4.12%.  One contributing cause for this result is that the average investor’s holding period for a fund was only 2.9 years.  Investors were chasing market returns selling when a fund dropped in value (selling at the low) and buying when funds were on the way up (buying at the high). Therefore, they missed the long-term gains inherent in the fund.  We all recognize the first principle of investing is to “buy low and sell high”, unfortunately this study indicates the opposite is more commonly true for the average investor.  In the end, the crucial point to remember is that an investor’s performance does not equal the investment’s performance.  Chances are you will under-perform the market, not beat it.

Necessary Lie Syndrome – Justification applied to imprudent behavior.  Necessary lies are the seemingly harmless little things we tell ourselves when we’re doing something we know we shouldn’t do.  Inherently, we can sense when we are involved in behavior that could be considered reckless or irresponsible.  After years of conditioning, there is often an internal voice whispering that we are breaking the rules.  Natural responses to this kind of self-condemnation are rationalization and justification.  Even if we are only talking to ourselves, we are hardwired to excuse and defend our own behavior.  This tendency only becomes more pronounced in situations in which we feel someone else might be judging our behavior.  These are the times when we generously apply necessary lies.  These seemingly minor falsehoods let us off the hook for doing what we know we shouldn’t.  The remedy to necessary lies is brutal honesty.  If you are ever going to be a realistic investor, then you must be willing to admit your own falsehoods.  Think about your own investing situation.  How have you been fooling yourself?

The principles we utilize in structuring our investment portfolios are based on sound academic research and Nobel Prize winning investment allocations utilizing true asset class diversified funds which are re-balanced not less than annually.  The result is a long-term investment plan which facilitates, by design, selling those asset classes which have performed well (selling at the high) and buying those asset classes which have performed poorly (buying at the low).  Additionally we customize the investment asset class allocation for each of our clients based on their individual tolerance for risk and financial time horizon.  Don’t be disillusioned.  You can’t blindly entrust your financial future to anyone, it’s your responsibility.  Contact our office to learn more about our proprietary, scientific, Nobel Prize winning investment allocation to reduce decision making, stress, anxiety and enhance attainment of your financial goals.


By Dan Wheeler, Director of Global Financial Advisor Services for Dimensional Fund Advisors.  Article published in Financial Planning, February, 2007.

One of my biggest professional roles is to help advisors do their best on behalf of their clients.  The way I see it, you have a fiduciary obligation to help ensure that your clients not only meet their financial goals, but that they also achieve those goals with as little stress along the way as possible.  That, essentially, is how I define a successful investment experience.

Delivering that experience comes from following a model of investing that is fundamentally different from the approach that most investors take.  The approach that I stand behind is rooted in science and the empirical findings of some of the investment community’s brightest minds, people like Eugene Fama, a contender for the Nobel Prize in economics, and Brad Barber, a pioneer in the field of behavioral finance.  Their research forms the framework of an investment philosophy that emphasizes true investing over speculation.

Of course, you are advisors, not academics.  All that science isn’t of much use unless it translates to lessons that you can use to deliver real investment value to your clients.  Fortunately, this high-level investment philosophy translates to lessons that are straightforward, practical and useful in building and maintaining optimal portfolios for your clients.


In a previous column, I argued that the stock market is efficient overall and that even on those occasions when prices don’t reflect all known information, it’s smart for investors to act as if they do.  That’s because the chances of any single investor being able to exploit those occasional mispricings on a consistent enough basis to make a meaningful difference in total return are exceptionally slim.  Capital Markets Work.

The science of investing is therefore based around the idea that you should look to capture the performance of the capital markets, do what works, instead of trying to enhance returns through stock picking, market timing and track record investing.  These three strategies are essentially nothing more than speculation and gambling by trying to predict the unknowable future of a company, market or country.  Of course, numerous studies on the failure of active managers prove this to be true.

As an advisor, you have a responsibility to keep your clients from acting as speculators and to keep yourself from acting as such when making decisions on their behalf.  By rejecting a speculative approach, you can start treating investing as a process of identifying the risks that compensate investors, the sources of investment returns as determined by financial science, and then deciding how much of those risks each client should take.  Clearly this removes much of the day-to-day stress associated with picking stocks and markets.  And if you do want to enhance returns, you can do so through strategic portfolio design.


So what does financial science tell us about which risks are worth taking?  Research over the past five decades reveals three main truths.  For starters, stocks are riskier than bonds and therefore have larger expected returns, a conclusion we all accept and take for granted by now.  But what about relative risk among stocks?  Here, we’ve learned that small company stocks have larger expected returns than do large company stocks.  And we have discovered that value-oriented shares have higher return expectations than do shares of growth oriented firms.  The reason is because investors, acting rationally based on known information, discount the prices of small company stock and value company stocks because of the additional risk in these investments.  To compensate for that risk, these stocks’ prices are set lower by the marketplace, allowing for greater upside potential.

In the fixed-income realm, we’ve learned that fixed-income securities are better used as methods to manage risk than they are to boost returns.  Therefore, portfolios consisting of bonds with relatively low risk-such as shorter-term, high-quality debt, let investors manage volatility or take on more exposure to the equity risk factors that are responsible for generating returns. 

Numerous details about these risk factors can be explored in other columns.  For now, the important thing to understand is that financial science has taught us to view investing in the context of risk.

This viewpoint allows advisors to build and maintain portfolios around those risk factors that compensate investors.  Your job doesn’t need to, nor should it, focus on picking the right stocks and avoiding the wrong ones.  Instead, your strategy can center around deciding how much you want to hold in stocks versus bonds, how much to hold in small company stocks relative to large company stocks, and how much to hold in value stocks versus growth company stocks.  This strategy is both simpler to execute and more advantageous to your clients’ financial lives because it is based entirely on how markets actually work to create wealth.

An additional element of structuring portfolios around risk is to reduce exposure to risks that don’t capture additional returns.  To do this, avoid concentrated portfolios that hold too few securities and refuse to speculate be betting on specific countries or industries, none of which is a proven factor in terms of risk and return.


The lessons of all this science boil down to two main concepts that you can use to guide every investment decision your clients make:

DIVERSIFICATION.  Economist and Nobel laureate Merton Miller says it best:  “Diversification is your buddy.”  Indeed, the way to avoid the risks associated with owning too few stocks and owing the wrong stocks is simple:  OWN THEM ALL.

DISCIPLINE.  The types of portfolios that financial science tells us to create are proven to work.  But the point to remind clients about is that they work over time, not every single year.  That’s why the key to achieving investment success is to stick with the investment plan through thick and thin.

Keeping clients disciplined can be extraordinarily difficult, largely because the media and much of the financial services industry send the message that success comes by taking action.  Furthermore, behavioral science tells us that our own emotions and biases can cause us to break our discipline at the wrong time.

The key is to keep your clients committed to a successful investment plan during those rough periods, and to keep yourself on track as well.  Remember, you are also susceptible to the urge to take unnecessary action.

If you’re thinking that these two lessons of financial science aren’t particularly sexy, you’re absolutely correct.  The sizzle of smart investing is that, there is no sizzle.  Helping your clients achieve success with the minimal amount of stress doesn’t have to be an overly complex proposition.   Investing doesn’t have to be sexy, is just has to work.  Years of research tells us that this approach works if you’re willing to stay committed to it.  In the end, that’s what will count to your clients.

We’ve included this article originally featured in the February, 2007 edition of Financial Planning because this is precisely the investment philosophy we utilize in designing our client’s investment portfolios.  Contact our office to obtain more information on how you can implement this tried and proven scientific approach in your investment portfolio.


Before 9/11 and Hurricane Katrina, the concept of a business “disaster plan” was envisioned mainly in terms of weather- or fire-related disasters and heavy on the notion of evacuation.

The concept of business risk today is so much wider – legal threats from inside and outside the company, computer-related losses, regulatory threats, and of course, the potential of human and facility losses due to natural disasters or the possibility of terrorism. There really is no one-size-fits-all approach to dealing with business risk – variables like your business size and structure and personal issues like your age, health and your time to retirement also factor into what should be a very customized risk management plan.

If you are starting a business or already own or co-own a company, the first steps in creating a disaster plan should involve separate visits to tax, insurance and qualified financial advisers.  A CERTIFIED FINANCIAL PLANNER™ professional with specific expertise in helping business owners plan their finances is a good place to start. Here are some general issues you should consider in developing an overall business disaster plan:

Your plan depends in large part on your industry and business structure. A three-person law partnership may have a completely different risk profile than a sole proprietor working out of his attic or the owner of a body shop. Whether you use expensive equipment in your business or if all you produce is valuable ideas on paper, you need to take specific steps to protect the value of your business assets in tandem with your personal finances. This process should start with a financial review to review how to protect your home, your income stream and your retirement savings if particular scenarios happen.

Develop a “what if” list. Be as imaginative and as negative as possible about this. Consider every possible event that could hurt you or your business – what hurts one automatically hurts the other. The first question – what if you died or became disabled tomorrow? Others might refer to some specific physical plant or computer risks as well as employee or customer risks that could affect your future operations.  A good way to make the list is to draw a line down the middle.  On the left side, list every possible risk, while writing every possible remedy for those risks on the right side.  Prepare this list before you meet with experts.

Protect yourself first. If you’re a good boss, you care about your employees and your customers, and we’ll get to them in a moment. But the first step in a business disaster plan is to review your list of worst-case scenarios and review how you would protect your home, your health, your retirement, your kids’ education and your estate priorities first. If your business fails for any reason, all of those critical necessities could be jeopardized. Make sure you have appropriate life and disability insurance coverage in addition to a current estate plan.

Protect your employees second. In a natural or man-made disaster, lives can be lost. But if you’re closed for weeks and months, key employees may leave and that might be a greater long-term danger to your company. Talk to your insurance company about every physical and employment risk your staff could face in a disaster and see what safety nets are available.

Protect your customers third. If you faced a lengthy business interruption, how would you serve the customers who are depending on you? Are there specific customer service and inventory procedures in place to keep them informed, supplied and most important, loyal once you’re up and running again? Do you have options for alternate office and production space as well as resources for temporary workers?

Protect your information. You don’t have to be some high-tech firm to understand the value of proprietary information that keeps your company running. From proprietary databases and research to customer credit information, this data is critical fuel for your business. What’s to keep a burglar from stealing your computers and taking all your valuable financial, inventory and customer data with them? Better yet, what’s to keep a computer hacker from stealing the information and leaving the machines behind? Data security and backup procedures are increasingly important as disaster-planning priorities. Get help finding the protective measures that fit your industry. 


An exchange-traded fund (ETF) is a basket of securities created to track as closely as possible a particular market index, such as the Standard & Poor’s 500 Index or the Dow Jones Industrial Average.  They’re similar to mutual funds in that they represent investments in the same types of securities, but they generally have lower fees and can be bought and sold with more pricing immediacy than mutual funds.  They also have some clear tax advantages.

Since their launch in the early 1990s on the American Stock Exchange, there are now hundreds of ETFs available for investors to buy.  As the market has struggled its way back since 2000, investors have embraced ETFs as a more efficient alternative to a mutual fund invested in the same securities.  A financial planner can tell you whether ETFs are right for your portfolio, but here are some details to know beforehand:

How are ETFs created?  An ETF is created by large institutional investors who buy stocks aligning with the shares in a particular index, and then they exchange those shares – in baskets as large as 50,000 shares – for shares in the ETF.  The redemption process works the same way in reverse  — the institutional investors exchange shares of the ETF for baskets of the underlying stocks.

Are all ETFs based on indexes?  Yes.  Indexes, like the S&P 500 or the Hang Seng Index (the primary stock index of the Hong Kong Stock Exchange), are a listing of stocks reflecting the activity of a particular investment sector on a stock exchange.  One of the first popular ETFs had an unusual nickname – Spiders – a play on its actual name, SPDR, short for Standard and Poor’s Depositary Receipts.  Newer ETFs track less well-known indexes, even indexes of bonds, and some ETFs are tracking very dynamic indexes that almost act like actively managed funds.

How are ETFs traded?  Unlike mutual funds, which have their prices set at the end of the trading day, ETFs are priced and traded every moment of the trading day.  That’s generally more meaningful to institutional investors who buy and sell constantly than long-term investors who buy and hold.  Furthermore, unlike mutual funds, ETFs can be bought on margin or sold short.

Why might ETFs be more tax-efficient?  Generally, ETFs generate fewer capital gains due to the unique creation and redemption process as well as the usually lower turnover of securities that comprise their underlying portfolios.  Financial planners note that investors can better control the timing of the tax treatment of ETFs relative to mutual funds.  Most importantly — by holding an ETF for at least one year and a day, capital gains will be treated as long-term capital gains, which are currently taxed at a federal rate of 15 percent (5 percent for low tax bracket investors).

Are there other advantages?  Unlike traditional mutual funds, which must disclose their holdings quarterly, ETF holdings are fully transparent, and investors know what holdings are in the ETF at any given time.  Each ETF also has a NAV tracking symbol for even more precise analysis.  This helps keep ETFs trading within pennies of their intraday NAV.

What about fees?  Shares of index-based ETFs may have even lower annual expenses than similar index mutual funds, which, in turn, tend to be lower than those of actively managed mutual funds.  ETFs must, however, be bought and sold through brokers, and those trades do involve transaction costs.  ETFs may prove to be more expensive than mutual funds to investors who add money each month to their portfolio.

What’s the downside?  Unlike regular mutual funds, ETFs do not necessarily trade at the net asset values of their underlying holdings.  Instead, the market price of an ETF is determined by supply and demand for the ETF shares alone.  Usually, the ETF value closely mirrors the value of the underlying shares, but there’s always a chance for ETFs to trade at prices above or below the value of their underlying portfolios.  Also, since so many new ETFs are hitting the market, investors should be aware of the maturity of the particular ETF they are considering.


Successful estate planning takes not one generation, but two. The first generation needs to make a clear, sensible plan and the second needs to be involved in that plan. The best estate strategies tend to be made with the advice of a CPA, financial adviser or an estate planning attorney. Without proper planning, estates can be eaten away by bad planning in ways ranging from the simple to the complex. They include:

Failure to leave a will: Most Americans know what a will is. So why won’t they take the time to make one? The estimated numbers of Americans without any kind of will is staggering – between 60-70 percent. Yet without a will in place, some or all of a person’s estate may be transferred to Probate Court with a complete stranger assigned to decide the future of the deceased’s assets. If you are a parent, make a will. These days, consumer software programs offer will kits that conform to legal language in each state and are legally binding and inexpensive to complete. They also prompt you to do health care and other directives (see below) necessary for a complete estate plan.

No plan for incapacity: An 80-year-old grandmother sinks into dementia. A 30-year-old father of twins is left in a coma after a car accident. Anyone can be left incapacitated at any age with no clear game plan for spouses or heirs. This wastes money, time and creates great emotional hardship. Advance health care directives designate health-care decision makers and delineate their powers, and leave very precise instructions about life support and other treatment options. Some individuals underscore written directives by videotaping themselves giving these instructions. Powers of attorney can also be created to assign financial decision makers to the situation.

Failure to coordinate or update beneficiaries: Any child who has struggled to settle a parent’s estate is very likely to have had problems with beneficiary designations on retirement accounts, investments, insurance policies, savings accounts and bonds. Many people think that beneficiary designation occurs at the creation of the will — not true. Beneficiary designations should be reviewed every few years for accuracy or when a major life event requires a change.

Failure to inventory:  A parent may think they’ve got a great system for organizing their investments and estate instructions. But if they die or are incapacitated, heirs may find it difficult to navigate their bookkeeping system or find key documents and investments left inside the house or in safe deposit boxes elsewhere. Financial advisers can provide a centralized system of organization for clients by keeping a separate index of those materials to help guide family members and heirs through a serious illness or estate settlement. Failure to find key documents may lead to severe tax consequences later.

No attention to special situations: If both parents die, how will substantial assets or life insurance proceeds be managed for minor children? If there is an adult child with a disability, is a Special Needs Trust or other directive in place? If a parent, friend or sibling dies without instructions for his pet, who will get Fido? A person’s last wishes are as unique as they are and should be considered part of the estate planning process. Heirs should insist on those provisions so they can distribute assets with maximum speed and minimum disagreement.

No Power of Attorney or inadequate joint name provisions: An incapacitated relative not only needs someone properly designated in his or her directives, but they need that person to have proper access to funds. To provide for this, a durable power of attorney can be filed with the account custodian, or joint names can be listed on the accounts so bills can be paid.  Naming a joint owner to an account may cause negative consequences, so consult your financial or tax professional before doing this.

Failure to update: Anytime there’s a divorce, a change in permanent residence or a major life transition, it’s a good reason to review an estate plan. Contact our office to prepare for the inevitable.


The World War II generation got a taste of higher education through the G.I. Bill and made it a point to supplement or pay their kids’ tuition.  It was a struggle, but a far more manageable one than it is in this day and age.  Figures from the University of Texas in 2005 showed that since the 1960s, the price of a public higher education has risen from about five percent of median family income to more than 17 percent today.

Based on the current pace, that number could rise to 30 percent of median family income by 2020.  Private universities could approach 50 percent.

Scary numbers indeed.  That’s why it makes sense for families to make college affordability a family effort – with both parents and kids pitching in.  That’s a big change in 40 years, where parents considered it a badge of honor to put their kids through school with no debt. But there’s a bright side to involving your child in the process of saving for college.  They’ll get an early education in money decisions that will have a direct impact on their future.  Here are ways to make sure you’re well informed about the college savings process and how to involve your child:

Get advice as early as possible.  Even if your child has only a short time until high school graduation, get advice tailored to your own situation from a trained expert such as a financial planner.  Parents often forget that their first financial goal is retirement planning, not college saving, so they need to start with the following points: 

  • What parents will need to support their retirement;
  • What they can contribute to their child’s college fund based on time to retirement and to  freshman year;
  • The best savings strategies for parent and child based on the tax situation for both;
  • A primer on college financial aid in all its forms.  Depending on the child’s need for financial aid, parents need to know what kind of assets they should hold in their child’s name and in what types of accounts for the best chance of securing financial aid if it’s needed.

Involve your child in the discussion.  Armed with knowledge from the financial planning process or your own research, start talking with your child about their financial contribution through money from part-time jobs, savings or, as a last resort, debt after college.  Parents might decide to schedule two advisory meetings with a planner – one for themselves, and a second one with the child.Lack of money isn’t the only reason kids may be asked to contribute or shoulder debt.  Blended families with ex-spouses who either don’t want to make a contribution or haven’t agreed to pay tuition as part of a divorce settlement can be a sticking point.  Whatever the reason may be it needs to be presented honestly to the child.

Tackle the FAFSA first.  The dreaded Free Application for Federal Student Aid (FAFSA) is a necessity for all parents who believe there will be some shortfall in paying for college after savings, grants and scholarships.  It’s a good idea to fill it out even if your needs aren’t immediate; family finances can change for the worse.  Your child won’t qualify for federal student loans until you fill out this form.  To speed the process, get your taxes done as early as possible in the year your child will need the funds.  Colleges typically dole out money on a first-come, first-served basis, so you’ll need your income documentation in order.Once the FAFSA is processed, the Department of Education determines financial need and the parent’s EFC, or the expected financial contribution.  If parents can’t cover the EFC, the student has to come up with a way to close the gap.  There’s a way to rough out what your EFC might be – go to

Start looking for free money.  On the community level, you might find corporations, associations and other groups that offer scholarships and grants for local students, particularly those going off to state or local schools.  Students can generally find out about local opportunities through their high school guidance counselor.  If the student works for a company on a part-time basis, there might be college support there.  Also, the College Board ( Web site features a good online clearinghouse for scholarships, grants, internships and loans, as well as  Contact our office to prepare for your children’s future.


Oh somewhere in this favored land the sun is shining bright. The band is playing somewhere, and somewhere hearts are light. And, somewhere men are laughing, and little children shout, but there is no joy in Mudville, mighty Casey has struck out.

There are two basic investment strategy theories. The first is that Free Markets Fail to accurately price stocks, therefore smart people, working diligently, can discover which stocks are mispriced by the market. Thus, they can buy stocks that are undervalued and avoid (or sell short) the stocks that are overvalued. They can also time the market, that is, they can get into the market at the bottom (buy low) and exit at the top (sell high).  The second is Free Markets Work, therefore stock prices established by seven billion investors daily accurately reflect all known information, and only unknown or unknowable information will change the price.  Accordingly there is no superior individual, or group of individuals, who can consistently and predictably identify undervalued stocks to buy, and overvalued stocks to sell short.

Free Markets Fail is what the practice of active management is all about – stock picking, market timing and track record (past performance) investing.  In other words, diligence, hard work, research, and intelligence will pay off in superior investment results. The problem is that while it may be a correct generalization (and as a result is the conventional wisdom), it doesn’t mean that it holds true in the world of investing.

Intelligent people don’t accept a belief as correct simply because it is considered conventional wisdom – an idea that is so ingrained that it often goes unquestioned. Instead, they seek evidence to support the belief. So let’s look at the evidence to see if active investing (Free Markets Fail) is the winning strategy; or is passive investing (Free Markets Work), the buying and holding all of the stocks in each asset class to which the investor seeks exposure, the winning strategy.

The three most common ways that investors engage in active management (Free Markets Fail) strategies are investing in individual stocks on their own, choosing their own professional money managers (i.e., mutual funds and separate account managers) to do that for them, or hiring an investment advisor, a manager of managers, who will, through a careful due diligence process, select the best fund managers for them.

Individual Investors

Brad Barber, professor of finance at the University of California , Davis , and Terrance Odean, associate professor of finance at the University of California , Berkeley , have done a series of studies on the performance of individual investors and concluded that individual investors aren’t as bad at stock picking as many people think. They’re worse! The following is a summary of their findings:

• The stocks individual investors buy  trail  the overall market, and stocks they sell beat the market after the sale. And this result did not even consider the transactions costs or the tax implications of an active trading strategy.

• The more investors traded, the worse the results. The average individual   that traded the most underperformed a market index by over 5 percent annually. On a risk-adjusted basis, the underperformance increases to 10 percent annually. The author’s concluded there was an inverse correlation between confidence and performance – the more confident one is in his/her ability to either identify mispriced securities or time the market, the worse their results.

• Although the stock selections of women do not outperform those of men, women produce higher net returns (by 1.4 percent annually) due to lower turnover (lower trading costs). Also, married men outperform single men. The obvious explanation is that single men do not have the benefit of their spouse’s counsel to temper their own overconfidence.

• Proving that more heads are not better than one, investment clubs trailed a broad market index by almost 4 percent annually.  STRIKE ONE!

Mutual Funds

A study covering a 10-year period found that on an after-tax basis, only 8 percent of all actively managed mutual funds outperformed the S&P.  Further the average over-performance was by just 0.9 percent. The 92 percent that failed underperformed the S&P by 3.1 percent. Thus you had a very slim chance of winning (8%) and even when you won, you tended to win by just the slimmest of margins (+.9%).

Inversely, you had a very high likelihood of losing (92%) and when you lost, your margin of underperformance (-3.1%) was quite large. The risk-adjusted odds against beating the S&P were about 38 to 1. Even Las Vegas gives you better odds than that. But the story is worse than it appears on the surface. The reason is that the data contains survivorship bias – poorly performing funds tend to disappear and thus their data was not included. Similar results were found when the study was extended to almost 20 years.

Unfortunately, the story gets even worse. Investors don’t seem able to even earn the returns of the very funds in which they invest. A study by Morningstar, covering the period 1989-1994, found that while the average no-load growth mutual fund earned over 12 percent  annually, the average investor in those very same funds earned just over 2 percent annually. The result is due to investor behavior. They are not buy-and-hold investors. Instead of owning the same funds for the entire five-year period, the average holding period was less than two years. Investors tended to buy yesterday’s winners (assuming they would be tomorrow’s winners), and therefore buy them at their high price, and sell yesterday’s losers (assuming they will continue to be losers) and sell them at their low price. Not exactly a prescription for investment success.

Mutual funds provided a very slim chance of out performing the market. When we adjust the mutual fund returns to take into account investor behavior (underperforming the very funds they invest in by 10 percent annually), it appears that investors were taking all the risks of stock ownership but earning only a very tiny percentage of the available returns. When presented with this evidence, an often-heard reply is: “Who cares about the average mutual fund? I don’t buy the average fund. I only buy the best of the best.”

One of the most common strategies followed by individuals is to invest in funds with great track records, funds to which Morningstar gives its coveted five-star rating. “The Hulbert Financial Digest” tracked the performance of Morningstar’s five-star funds for the period 1993-2000. For that eight-year period the total (pretax) return on Morningstar’s top-rated U.S. funds averaged +106 percent, compared to a total return of +222 percent for the Wilshire 5000 Index. Hulbert also found that the top-rated funds, while achieving less than 50 percent of the market’s return, carried a relative risk (standard deviation) that was 26 percent greater than that of the market. If the performance had been measured on an after-tax basis, the tax inefficiency of actively managed funds relative to a passive fund would have made the comparison significantly worse.

In another study, Hulbert found that a portfolio from January, 1991 to March, 2002 that was fully invested in Morningstar’s 55 highest rated mutual funds (based on their semi-monthly newsletter), buying when they climb into this elite group and selling when they drop out, trailed the market by 5.9 percent annually, after paying sales charges, redemption fees, and other transaction costs. And finally, for the period 1995-2001, funds rated one star outperformed funds rated five star by 45 percent.


Best of the Best

There are investment advisory firms that are managers of managers. These firms perform searches of historical databases in order to identify the very best performing funds or separate account money managers for each asset class. Through a rigorous due diligence process that includes interviewing the various candidates and eliminating those that fail to pass strict selection criteria, they narrow their choices to the very best managers before making their final selections. The process seems quite logical and is the conventional wisdom on how to beat the market. The question is, does the process deliver superior results?

Why do these firms, with all of their resources, fail? Inevitably, several of the managers hired begin to under perform their benchmarks (market indexes) and they are put on a watch list. Eventually, several get fired and the selection process is repeated. Over time most, or even all, of the original group are replaced. No one seems to give any thought to the notion that if the same process is repeated, you are likely to have the same results – managers that under perform. The reason the process fails to deliver superior performance is that conventional wisdom, past performance is a good predictor of the future performance, is wrong. And thus the process is flawed. STRIKE THREE!


So ….

Many individuals are discouraged by poor investment results, since the foregoing facts demonstrate that investors are unable to consistently and predictably obtain market rates of return. On the contrary, the news is actually very good. In fact, the outcome is precisely what we would expect to see.  Free Markets Work!

Competitive markets are a wonderful invention. All the studies showing that experts struggle to achieve market returns means that the financial markets are functioning properly and prices for public securities are fair, and accordingly represent the best estimate of their current value. The result is that with seven billion investors competing with each other, even the most highly informed experts cannot consistently and predictably take advantage of the uninformed to earn excess profits. It seems that the “wisdom of the crowd” is mightier than the knowledge of the few.

Wall Street wants you to play the game of “active investing”. They know that your odds of success are extremely low. But they need you to play so that they (not you) make the most money. They make money by charging high fees (trading commissions, bid/ask spread, and mutual fund expenses) for active management that consistently delivers poor performance. But you don’t have to engage in active management strategies. Instead, you can simply accept market (not average) rates of return by utilizing passively managed asset class diversified funds with very low expenses and high tax efficiency. By doing so, you are virtually guaranteed to outperform the vast majority of both professional and individual investors.

In other words, you win by not playing their game of trying to outperform the market. This is why active investing is called the loser’s game. It is not that the people playing are losers. And it is not that you cannot win. Instead, it is that the odds of success are so low that it’s imprudent to try.

Yes, active investing can be exciting, or extremely depressing. Wall Street and the media create the hype. Prudent investing is about providing you with the greatest odds of achieving your financial goals with the least amount of risk. That is what differentiates investing from speculating and gambling.

The following words of wisdom from Daniel Kahneman, professor of psychology and public affairs at Princeton University , are a fitting conclusion. “What’s really quite remarkable in the investment world is that people are playing a game which, in some sense, cannot be played. There are so many people out there in the market; the idea that any single individual without extra information or extra market power can beat the market is extraordinarily unlikely. Yet the market is full of people who think they can do it, and full of other people who believe them. This is one of the great mysteries of finance: Why do people believe they can do the impossible? And why do other people believe them?”

Contact our office for a FREE Investment Analysis ($500 value) to protect your financial future.


Charles Massimo, president and founder of CJM Fiscal Management (Garden City, NJ), sees five common mistakes made by all investors at all levels of wealth and investment experience:

  1. Not knowing the difference between effective and ineffective diversification and what that   means to investors’ returns.
  2. Not understanding the standard deviation, or level of risk they are taking in their portfolio.
  3. Underestimating the power of Modern Portfolio and Asset Class investing in preserving an investors’ wealth.
  4. Not rebalancing a portfolio on an annual basis.
  5. Not understanding the difference between passive and active investing.

(Source CPA Wealth Provider ©, January, 2007)

Our “Separating Myths from Truth, The Story of Investing” seminars explain each of the above five common investment mistakes and provide a scientific approach to investment management designed to achieve market rates of return, reduce risk and volatility, and provide investors’ with greater peace of mind.  Contact our office to attend our next seminar.


Do online interactive financial planning models really help people in deciding how much to save, to insure, and to invest in stocks and other asset classes? These models vary in complexity and in level of detail, according to a recent Boston University School of Management Conference on the Future of Life-Cycle Saving & Investing.

Many of these models are available for free on the Web sites of financial institutions. The simplest are “calculators” that tell the user how much to save each year at an assumed rate of return in order to accumulate a desired future sum at an assumed retirement date. They make doing sensitivity analysis quick and easy. The more ambitious ones perform Monte Carlo simulations and take into account a relatively large number of factors, including household size and composition, income, wealth, desired retirement date, expected inflation rate, expected asset returns, attitude towards risk, etc. A Monte Carlo simulation is an analytical tool for modeling future uncertainty. In layman’s terms, it’s a computer program that first examines thousands upon thousands of market environments and market returns and then spits out ranges of possible outcomes or success rates.

But many of these models, at least from the perspective of economic theory, are seriously deficient according Laurence J. Kotlikoff, Professor of Economics, Boston University and President, Economic Security Planning.

In his recent paper, “Is Conventional Financial Planning Good for Your Financial Health?” Kotlikoff notes that economics teaches us that we save, insure, and diversify in order to mitigate fluctuations in our living standards over time and across contingencies.

While the goals of conventional financial planning appear consonant with such consumption smoothing, the actual practice of conventional planning is anything but. Consumption smoothing is the notion that consumers will spend on average 70 to 80 percent of their preretirement income per year once in retirem ent. Conventional planning’s disconnect with economics begins with its first step, namely forcing Americans – in the absence of a financial planer – to set their own retirement spending targets. In many cases, experts say Americans are ill-equipped to establish how much they will spend in retirement.

Setting spending targets that are consistent with consumption smoothing is incredibly difficult, making large targeting mistakes almost inevitable, Kotlikoff notes.

But even small targeting mistakes, on the order of 10 percent, can lead to enormous mistakes in recommended saving and insurance levels and to major disruptions (on the order of 30 percent) in living standards in retirement or widow(er) -hood.

There are many reasons why small targeting mistakes lead to such bad saving and insurance advice and such large consumption disruptions, according to Kotlikoff. For instance, the wrong targeted spending level is being assigned to each and every year of retirement. In addition, planning to spend too much (or too little) in retirement requires spending too little (or too much) before those states are reached. This magnifies the living standard differences.

Conventional planning’s use of spending targets also distorts its portfolio advice. Given a household’s spending target and its portfolio mix, standard practice entails running Monte Carlo simulations to determine the household’s probability of running out of money. Most of these simulations assume that households make no adjustment whatsoever to their spending regardless of how well or how poorly they do on their investments. But consumption smoothing dictates such adjustments and, indeed, precludes running out of money; i.e., ending up with literally zero consumption. It is precisely the range of these living standard adjustments that households need to understand to assess their portfolio risk. Conventional portfolio analysis not only answers the wrong question; it may also improperly encourage risk-taking since riskier investments may entail a lower chance of financial exhaustion thanks to their higher mean return.

In addition to exposing the general and generally serious shortcomings of targeting spending, Kotlokoff says online calculators typically offer remarkably simple advice geared to speed households through the planning process in a matter of minutes.

But quick and simple doesn’t necessarily spell helpful, according to Kotlikoff. In fact, many online calculators lead to dramatic oversaving thanks to retirement -spending targeting mistakes ranging from 36 to 78 percent too high.

For his part, Kotlikoff suggests: “None of us would go to a doctor for a 60-second checkup. Nor would we elect surgery by meat cleaver over surgery with a scalpel. And any doctor who provided such services would be quickly drummed out of the medical profession. Financial planning, like brain surgery, is an extraordinarily precise business. Small mistakes and the wrong tools can just as easily undermine as improve financial health.”

At the end of the day, most experts suggest that using a financial planner can eliminate the need to use Web-based calculators and run the risk of saving too little for retirement or spending too much in retirement. Contact our office to schedule a FREE Investment Analysis to secure your financial future.


A lot is being written about how much money American s can withdraw from their investments to fund their retirement years. Now, a new research institute has outlined the order in which money should be withdrawn from various tax-deferred and taxable investment accounts. Described as the ‘withdrawal hierarchy,’ the Research Institute suggests the order, with modifications made courtesy of other financial planning experts.

1. Take your minimum required distributions (MRDs) from qualified accounts and IRAs. If you are age 70½ or older, make sure you know which of your accounts require such distributions and how large those distributions need to be, and then meet the requirements and deadlines, avoiding the application of the 50 percent income tax penalty that will be assessed if you fail to make timely withdrawals of required distributions.

2. Liquidate loss positions in taxable accounts. Some investments in your taxable accounts may be worth less than their tax basis. In addition to offsetting realized losses against realized gains, at the federal level you can usually use up to $3,000 ($1,500 for married couples filing separately) of net losses each year to offset ordinary income including interest, salaries, and wages. Unused losses can be carried forward for use in future years.

3. Sell assets in taxable accounts that will generate neither capital gains nor capital losses. Such assets generally include cash and cash-equivalent investments as well as capital assets which have not increased in value. If your withdrawals from this tier in the hierarchy largely come from cash-equivalent investments, sufficient liquid assets holdings should remain intact in order to cover short-term financial emergencies. And be especially mindful of portfolio rebalancing issues.

4. Withdraw money from taxable accounts in relative order of basis, and then qualified accounts or taxdeferred saving vehicles funded with at least some nondeductible (or after-tax) contributions, such as variable annuities and Traditional IRAs that contain non-deductible contributions. The choice depends on the circumstances, and in some cases it might make more sense to tap the tax-deferred vehicle first, but for most retirees , capital gains rates are lower than ordinary income tax rates and generally liquidating capital assets first would be beneficial.

Assuming there is a significant difference in the basis-to-value ratio of the assets to be liquidat ed in two accounts, the better tactic for choosing between these two types of withdrawals may be to liquidate the assets with the higher ratio. That is, the assets that have generated the smallest gain or the largest loss as a percentage of their basis. If the basis-to-value ratio of the assets to be liquidated in each account is relatively low due to significant investment gains, it often will be preferable to liquidate the assets in the taxable account. Conversely, if the basis-to-value ratio of the assets to be liquidated in each account is relatively high, it may be preferable to liquidate assets in the tax-deferred account if portfolio demands require it. Note that IRAs are generally subject to certain aggregation requirements when allocating basis. When liquidating gain positions in taxable accounts, it usually makes sense to sell assets with long-term capital gains first, since they should be taxed at lower rates than short-term gains.

5. Withdraw money from tax-deferred accounts funded with deductible (or pre-tax) contributions such as 401(k)s and Traditional IRAs, or tax-exempt accounts such as Roth IRAs. It may not make much difference which account you tap first within this category since all withdrawals from any tax-deferred accounts funded with fully deductible (or pre-tax) contributions are taxed at the same rate. When withdrawing money from taxdeferred accounts funded with fully deductible (or pre-tax) contributions, you may wish to request that taxes be withheld.

If you believe that the withdrawals you make may be subject to different tax rates over the course of your retirement (whether due to changes in tax law or to varying tax brackets as a result of fluctuations in income) you may be better off liquidating one type of account within all of these guidelines before another. For example, it may make more sense to leave your Roth account intact if you thought your ordinary income tax rate was likely to rise in later years, increasing the value of the Roth’s tax exemption.

Estate planning considerations may also significantly impact the entire hierarchy. Generally, qualified and taxdeferred assets may be given a higher order within the withdrawal hierarchy in the case of larger estates expected to hold “excess” assets which will pass to heirs or be subject to estate taxes. Capital assets receive a step-up in basis at death, while qualified and tax deferred assets are considered to contain “income in respect of a decedent” and do not receive a step-up. A number of other issues may also have an effect on the recommended order of withdrawal , like if the retiree’s income approaches the threshold of paying taxes on Social Security income. Contact our office to review your retirement distribution options to minimize your taxes.


Many older Americans want to age in place, to live in their homes rather than relocate to a nursing home or an assisted living facility.  But often times, older adults don’t have a working knowledge of or access to home- and community-based services that promote independent living.

In October, a consumer awareness campaign aptly named National Aging In Place will occur and it has been deemed the perfect time for older Americans and their relatives to discuss a whole range of livability issues.  What are the topics that relatives and older Americans should broach?

According to the National Aging in Place Council (NAIPC), those topics include home safety and fitness, financial planning and budgeting, in-home healthcare and chore services, home accessibility issues, reverse mortgages, and transportation and meal services, among others.

Indeed, many older Americans will need to make their homes “senior friendly.”  Entry ways, bedrooms, bathrooms, kitchens, lighting, and the yard all need to be examined and remodeled if need be.  The NAIPC, for instance, recommends remodeling homes such that they have barrier-free entry ways, including no-step entries, no-step thresholds, and garage lifts.  For its part, the NAIPC reports that barrier-free entryways make it easier for a family member or friend who uses a wheelchair, or a grandchild who’s on crutches.

In addition, the NAIPC recommends making one’s bathrooms and bedrooms safe and comfortable.  The NAIPC suggests the following modifications to a bathroom: build a roll-in shower with multiple showerheads (height adjustable handheld showerhead and fixed); lower the bathroom sink and make sure there’s proper knee clearance; install an elevated toilet and grab bars.  The following modifications should be made to a bedroom: make sure there’s ample maneuvering clearance; build a walk-in closet with storage at differing heights; and install rocker light switches that are easier to turn on compared to a more common flip switch.

Kitchens likewise need to be “user-friendly.”  For instance, the NAIPC suggests that older Americans who want to age in place ensure there’s ample maneuvering space; vary the height of countertops; install a sink with knee clearance; install a raised dishwasher, lower cooking surfaces; and mount a wall oven or microwave at reachable heights.

Besides remodeling, it’s important that older Americans consider the risks that come with aging in place.  For instance, people often misjudge their chances of developing a debilitating health condition or they underestimate the cost and length of the services they may need as a result.  “Too much optimism or denial can lead to poor planning,” the NAIPC says.

Older Americans can determine their life expectancy, for instance, by examining their family health history and current health.  There are several Web sites that can help older Americans calculate their life expectancy such as that found at

It’s important that older Americans also estimate the cost of home care by evaluating what, if any, access they have to family and friends who can serve as “unpaid” health aides as well as the cost of paid health aides in their specific area.  The cost of living at home increases dramatically if there is no access to “unpaid” help.  For instance, a person who needs just a few hours of help from a home health aide in the morning and at night could easily spend $72 per day, or $2,160 per month, according to the NAIPC.  On the other hand, Meals On

Wheels programs, which usually ask for only a voluntary donation, have been responsible for helping many stay well nourished and at home when shopping and cooking become difficult or impossible.

To be sure, older Americans will need to consider living at home with a chronic condition or conditions.  For instance, the National Council on Aging noted in a 2005 study that 13 percent of homeowners age 62 and older (2.5 million) need help with activities of daily living (ADLs) or instrumental activities of daily living (IADLs) and 16 percent have difficulty with these everyday activities, while still being able to do them on their own.  The U.S. Dept. Health and Human Services and Alzheimer’s Association report that more than two-thirds of all older people who need help with everyday tasks live at home, including more than 70 percent of those with Alzheimer’s disease.

Not surprisingly, the NAIPC reports that a chronic health condition can limit a person’s ability to age in place.  But it’s important to determine the level of impairment.  Those who need help with ADLs have limitations that require daily attention.  These include feeding oneself, bathing, dressing, transferring from a bed to chair, and using the bathroom safely.  Meanwhile, those who need help with IADLs have limitations with activities such as shopping, cleaning, cooking, using the telephone, and money management.  These can often be accomplished with intermittent help.  The marketplace is responding to the Aging in Place trend with new products, easy to open containers and more services. Ultimately, difficulty with household activities is often a sign that the elder is becoming frail and that they will need more help in the future.

When planning the home care needs for someone who needs such help, it’s also very important to remember that family and spouses also need a break from the incredibly hard work – mentally and physically – of taking care of a loved one around the clock.  Even if it is only for an occasional night off or a long weekend to “recharge the batteries”, the family helpers can use a few hours of home care support now and then.  It should be part of the planning and the budget.


The questions are more than academic.  1.  “How much can an investor afford to withdraw from their portfolio during retirement, while minimizing the risk of exhausting that portfolio prematurely?”  2.  “How should a person’s portfolio be invested such that he or she can withdraw the maximum amount possible?”  These are questions that investors must address if they want to maintain the same standard of living in retirement as in their working years.

Indeed, with the decline of traditional pension plans and increases in longevity and health care cost, millions of Americans must now consider not only how to save for retirement but how to preserve their portfolios during retirement.  According to William Bengen, CFP®, author of “Conserving Client Portfolios During Retirement,” the highest withdrawal rate that produces 30 years of longevity is somewhere between 3 percent and 6 percent, what he refers to as SAFEMAX – the “Maximum Safe Withdrawal Rate.”

To be sure, each person may have their own SAFEMAX, depending on such factors as asset allocation and rebalancing, but Bengen notes that 4.15 percent — assuming a 30-year time horizon – is perhaps the ideal withdrawal rate when using a portfolio made up of two asset classes with 64 percent invested in large-company stocks and 37 percent invested in intermediate-term Government bonds, and which is rebalanced at the end of each calendar year.

By way of background, this maximum withdrawal rate is based on a study of “50 retirees” using actual historical investment returns and rates of inflation to test assumptions about withdrawal rates, asset allocation, and portfolio longevity, according to Bengen.  This approach contrasts with approaches that use probability models, such as the Monte Carlo simulation, which use mathematical models of investment performance and inflation to produce maximum withdrawal rates.  Both historical returns and probability models have their strengths and limitations.

The SAFEMAX can change, however, depending on the number of asset classes used in a portfolio.  For instance, a portfolio made up of three asset classes with 17.5 percent invested in small-company stocks, 42.5 percent invested in large-company stocks and 40 percent in intermediate-term Government bonds will produce SAFEMAX of 4.4 percent.  For his part, Bengen notes that planners and investors with a high tolerance for volatility and a desire to maximize their withdrawals could increase the percentage invested in stocks.

Of note, Bengen reports that investors need not include long-term bonds in their retirement portfolios given the limited impact on increasing the SAFEMAX, but investors can replace intermediate-term government bond funds with money market funds without any adverse effect on withdrawal rates.

To be fair, the maximum withdrawal rate can also change if an investor uses a time horizon other than 30 years.  Not surprisingly, the peak SAFEMAX increases as the time horizon shortens.  For instance, the peak SAFEMAX for a person with a 10-year time horizon is 8.9 percent, about twice that for a person with a 30-year time horizon.  In addition, the percentage that a person invests or allocates to large-company stocks declines as the time horizon shortens, until about 10 years is reached, after which it increases with decreasing time horizons.  For instance, individuals with time horizons of about 15 to 20 years will optimize their withdrawal rate with a total equity allocation of 30 percent.

Individuals with a time horizon of more than 30 years, meanwhile, can use an initial withdrawal rate of 4 percent for their tax-deferred portfolio, 65 percent of which would be invested in large-company and small-company stocks.

What is the risk of higher withdrawal rates?  According to Bengen, increases in withdrawal rates reduced the odds of an investor’s portfolio lasting 30 years.  For tax-deferred accounts, an increase of 1 percentage point above the SAFEMAX in the initial withdrawal rate reduces the probability that a portfolio will last 30 years by 15 to 20 percent.  An initial withdrawal rate increase of 2 percentage points above the SAFEMAX results in a 55 to 60 percent success rate.  For taxable accounts, the results are slightly different.  An increase of 1 percentage point above the SAFEMAX in the initial withdrawal rate produces a success rate of roughly 85 to 90 percent and an increase of 2 percentage points results in a 70 percent success rate.  The bottom line is that some individuals may want to trade off a higher initial withdrawal rate for the near certainty of their portfolio lasting as long as their time horizon goal.

Investors and financial planners can use other techniques for increasing the initial withdrawal rates without increasing risk.  For instance, retirees can modify their withdrawals using such approaches as the fixed-percentage approach or the floor-and-ceiling withdrawal approach.

In addition, Bengen reports that investors can marginally increase their initial withdrawal rates by changing the frequency with which they rebalance their portfolios during retirement.  For instance, many investors are told to rebalance their portfolios at least every 12 months.  But according to Bengen’s research, investors could rebalance every 75 months, or once every 6 and one-quarter years, and actually improve the initial withdrawal rate to 4.65 percent.  Contact our office for a FREE Investment Analysis and see how using our conservative scientific portfolios can enhance your retirement years.


These are tricky times for American investors and consumers in general.  The economy seems to be cooling down!  The second quarter GDP rose just 2.5 percent, down from 5.6 percent in the first quarter of 2006 and below its average of 3 percent during the recent expansion.  And the housing market, perhaps in reaction to 30-year fixed rate mortgages above 6 percent in late July, also seems to be slowing down: Sales of new homes fell 3 percent to 1.13 million homes in June and revisions to data released by the Commerce Department also showed the U.S. housing market was weaker in the first quarter than previously reported.

Meanwhile, recent inflation and spending data show inflation to be at an 11-year high.  For instance, The Federal Reserve’s favored inflation gauge — the core personal consumption expenditure price index — increased 0.2 percent for the third straight month in June.  Core inflation, excluding food and energy, has risen 2.4 percent in the past 12 months, matching the largest year-over-year gain since the spring of 1995.  Consumer prices including food and energy also rose 0.2 percent in June, and were up 3.5 percent in the past year.  As a reference, the 20-year average annual rate of inflation was 3 percent.

The cross currents of a cooling economy and housing market with rising prices and the threat of wage pressures has left the Federal Reserve in a bit of a bind.  For the past two years, the Federal Reserve has been increasing short-term interest rates as part of an effort to slow down the economy and inflation.  But while the Federal Reserve has indeed slowed the economy, it has yet to bring inflation under control.  The main culprits are surging raw material and energy prices – the average gallon of unleaded gasoline hovering around $3 – over which the Fed has little control.

This coincidence of an inflationary threat with a slowing economy has led some to raise the prospect of the return of something not experienced in decades – stagflation.

Stagflation occurs when economic growth stalls and inflation continues to rise.  According to Wikipedia, the online encyclopedia, stagflation is considered to be a problem because most tools for influencing the economy using fiscal and monetary policy are thought by some analysts to be based upon the trade off between growth and inflation.  “Either they slow growth to reduce inflationary pressures, or they allow general increases in price to occur in order to generate more economic growth.”  Stagflation creates a policy bind wherein attempting to correct one problem exacerbates another.  However, although some similarities exist in the form of rising oil prices and inflationary risks, there is little in the current situation to indicate the return of the stagflation of the ‘70s.  Economic growth, while showing some signs of slowing, remains generally strong.  And the forces of globalization and the global competition that results, in the context of world wide central bank restraint, make serious inflation less of a threat than in the earlier period.  The more serious threat today is that the Federal Reserve will go too far, resulting in a recession.

For investors, the upshot of the unholy combination of rising inflation in a cooling economy might be devastating.  What can an investor do?  Investors might consider repositioning your investment portfolio by shifting a portion from stocks to bonds.  Putting a larger portion of funds into high-quality, long-term bonds, such as the 10-year Treasury bond, is one strategy since these had a yield of 4.98 percent at the end of July.

According to financial planners, if the Fed keeps pushing the button marked “increase short-term interest rates” too long, a mild recession could result.  Should this happen, market interest rates would come down in response and a bull market for long-term bonds would result, with the price of bonds increasing.  Likewise, experts also recommend using five-year certificates of deposit to produce income.  High quality CDs that mature in five years had a recent yield of 5.04 percent.

On the equity side of a portfolio allocation, investors might also want to consider investing more in high-quality, dividend-paying stocks.  Stocks of companies that pay out a good percentage of their earnings as dividends generally have less price fluctuation than stocks of non-dividend payers.  The dividend represents a big part of the return, which often smooths out price volatility of those stocks.  More often than not, large companies, such as those that are part of the Standard & Poor’s 500 stock index, pay high dividends.  The current yield of the S&P 500 is, for instance, 1.86 percent.  Contact our office for a FREE Investment Analysis.


Target-date and target-risk funds have become popular investments among 401(k) plan participants and retirement investors, especially those who have neither the time, knowledge nor inclination to create and manage an investment portfolio.

For instance, recent research by Financial Research Corporation, shows that assets in target-date retirement funds has risen dramatically over the past several years, rising from $14.5 billion in 2002 to $86.7 billion in May, 2006.  And assets in lifecycle funds have risen from $54.6 billion in 2002 to $145.9 billion in May, 2006.  What’s more, FRC is predicting that both target-risk and target-date retirement funds, sometimes referred to as lifecycle or lifestyle funds, will continue to grow dramatically over the next four years, with target-date retirement funds hitting some $30 billion by 2010.  Target-date funds are mutual funds that base their asset allocation around a specific date, and then rebalance to more conservative allocations as that date approaches, according to FRC.  Target-risk funds are mutual funds that build their asset allocations around a pre-specified level of risk, and then rebalance to maintain that risk level.The appeal of such funds, which are designed as a complete solution for investors with similar risk profiles or time horizons, is perhaps obvious.  Such funds provide instant diversification and the benefits of disciplined portfolio rebalancing.  Technically, a fund of funds, target-date and target-risk funds invest in a variety of mutual funds, typically those offered by the same fund family.  For instance, the average 2010 target-date fund invests in 15 funds, according to a recent Brigham Young University study and has 35.5 percent of its assets in U.S. stocks, 8.5 percent in non-U.S. stocks, 45.2 percent in bonds, 10 percent in cash, and 0.8 percent in other types of securities.  In addition, the manager of such funds will rebalance the portfolio adjusting the mix of the portfolio to become more conservative as the portfolio nears the target-retirement date.

And most important, such funds are easy to use since investors and financial planners for that matter don’t have to search through thousands of mutual funds to create a portfolio.  A recent study suggests that three in four financial planners are now recommending target-date and target-risk funds for investors with less than $100,000 to invest.

But recent studies also indicate that both target-date retirement funds, and lifecycle funds, are being misused.  Indeed, studies suggest that 401(k) plan participants are mixing such funds with other funds and using them as conservative choices along with several other selections.  This, say financial planners, abrogates the purpose of the funds.

For instance, according to Hewitt Associates in June 2006, the average 401(k) plan participant had 6.4 percent of their assets in a target-date or target-risk fund, 21.7 percent in a stable value fund, 22.2 percent in company stock and 20.7 percent in U.S. large-capitalization stocks.  According to financial planners, the mix should be almost reversed with the greater percentage in the target-date or target-risk funds and the smaller percentage allocated to investments that don’t duplicate the funds or investment objectives in the target-date or target risk funds.

To be fair, a recent Hewitt Associates study did show that more and more 401(k) plan participants seem to be using lifestyle and lifecycle funds correctly, investing their entire plan balance into the funds.  Hewitt noted in a May 2006 study that the overall number of employees investing in lifestyle and lifecycle funds has remained constant, but the number of employees using them as turnkey solutions increased.  For instance, one in five employees holding a lifestyle or lifecycle fund had their entire 401(k) balance in them in 2005, up from 15 percent in 2004.  In addition, nearly half of employees with less than one year of tenure investing in a lifestyle or lifecycle fund invested all of their 401(k) monies in a single lifestyle or lifecycle fund in 2005, an increase from 34 percent in 2004.

So what then is the right way to invest in target-date or target-risk funds?  Investors need to get a sense of the time horizon, tolerance for risk and investment goals.  In the parlance of professionals, investors need to construct an investment policy statement which outlines, among other things, a target asset allocation or mix between stocks, bonds and cash.  Most lifecycle funds are designed to take away all that work, but not all lifecycle funds are created alike, so it’s important that investor find the lifecycle fund that best matches their personal tolerance for risk.

With that an investor can then examine whether it’s better to invest in many different types of funds using the help of a professional or to use target-date or target risk funds that best match their personal goals, time horizon, and tolerance for risk.  That’s especially important since target-date and target-risk funds may all sound the same in theory, but are quite different in reality.  For instance, the asset allocation of such funds will quite often differ quite dramatically from one fund firm to another.  What’s more, the rate at which a target-date retirement fund becomes more conservative over time will differ dramatically.  And while these funds often have similar sounding names, the performance and fee associated with these funds will vary greatly too.  Contact our office for a FREE Investment Analysis.


The federal estate tax may or may not be repealed or reformed anytime soon. But such discussions in Washington should not dampen the use of irrevocable life insurance trusts as a still very viable and valuable planning tool and technique which has applications beyond the tax efficient payment of estate taxes.

Indeed, financial planners say irrevocable life insurance trusts, or ILITs, can fulfill many estateplanning goals, not the least of which is avoiding federal estate taxes on the death benefit amount of the life insurance policy. By way of background, there are two major types of trusts: revocable—which can be changed as often as you want—or irrevocable—which generally cannot be amended or changed without the permission of a court, and then only for limited purposes. These trusts can either be funded (assets that will produce premium dollars are put in the trust) or non-funded (premiums are contributed annually). Typically, a person would either transfer an existing insurance policy on their life into a trust (or have a trust purchase a new insurance policy) if they were interested in controlling the distribution of the death benefit in a manner beyond the ability of the contract provisions to do so, if they wished to remove the proceeds from their taxable estate, or, in some cases, beyond the reach of the creditors of beneficiaries.

As the name suggests, an ILIT is a trust that cannot be changed or revoked by the creator or “trustor” once it is executed. Generally the trustee cannot be changed, the beneficiaries or the terms of the trust cannot be changed, and assets in the trust cannot be removed by the person who created the trust. By way contrast, a revocable trust can be changed by the trust’s originator, beneficiaries can be added or removed, assets can be withdrawn, and the trust can be terminated.

In general, here’s how it works: The life insurance trust is created first, and then the trust buys a life insurance policy in its own name on the trustor. The trustor, in an unfunded trust, annually adds funds to the trust, which in turn, buys (and continues to pay for) the policy in its own name, and pays the policy’s premium against its own account. An independent trustee is general ly required in this case if ”incidents of ownership” of the life insurance policy are to be avoided on the part of the person creating the trust.

It is possible to transfer an existing life insurance policy to such a trust however; in this case, the policy death benefit will remain part of the trustors’ estate for three years after the transfer. It’s important that the trustor irrevocably relinquishes to the trust absolutely all control over the policy. It’s best to work with an estate planning attorney when creating an ILIT.

In essence, the trust takes over ownership of the policy. The trustor then makes contributions to the trust, which, in turn, uses the contributions to pay the policy’s premium against its own account.

As mentioned, a major reason for an ILIT is that the assets in the trust — the proceeds of the life insurance policy or the face value after the insured dies — will not be included in insured’s taxable estate at their death. As long as they do not retain any incidents of ownership in the life insurance policy, the proceeds should not be taxed in their estate. Most people will use an irrevocable life insurance trust if they anticipate that their assets will be above the applicable exclusion amount (and, thus, subject to tax).

But having assets pass outside on a taxable estate is just one reason for using an ILIT. The combination of life insurance and a trust assures the management, investment, and timing of that wealth. And it does so with a great deal more flexibility than the name might suggest.

The combination of life insurance and trusts have amazing creditor protection potential – far more than either alone. Once an individual has parted with (or never owned) life insurance and it’s safely in an irrevocable trust containing the proper “spendthrift” provisions, it’s almost impossible for the creditors of the beneficiaries to reach it. In other words, one of the most effective ways to assure the financial security and future of loved ones (or a charity) is life insurance in an irrevocable trust.

The combination of life insurance with a trust can avoid the costs, delays, and aggravation of probate – not just once – but over several generations. The life insurance/trust combo offers flexibility impossible to achieve through life insurance alone – while the life insurance in the trust makes a much larger and therefore more economical/practical/cost effective trust possible and in most cases is the only instrument capable of providing a benefit at precisely the time it is needed.

In addition, cash payments to an irrevocable life insurance trust may qualify for annual gift exclusion. In order to qualify, beneficiaries of the irrevocable life insurance trust are given what are called Crummey powers or “present interest rights” to the monies which when structured correctly will be declined by them so that the monies can be used to pay premiums.

As a reminder, it’s best to work with an estate planning attorney when creating an ILIT. Contact our office for further information on whether a Life Insurance Trust is right for you.


It’s one of the six steps of the financial planning process. But, oftentimes, it’s the one step that gets overlooked. It’s the sixth step – the annual financial check-up.

The annual financial check-up is indeed the most important of the financial planning steps. And yet,financial planners and clients sometimes downplay its significance.

What is the annual review and why is it so important? In short, the annual review is the opportunity to measure a client’s progress against their plan of action. It’s also the one time when planners and clients can examine the many changes that typically occur any given 12-month period – the birth of a child, the death of a loved one, the loss of a job, a major purchase – and then readjust the client’s financial plan, charting a new course if need be or further affirming the client’s progress towards their personal financial goal achievement.

Indeed, lives are seldom static and that’s why financial plans are not necessa rily set-and-forget documents. But what exactly should financial planners and clients examine in their annual meetings? And when should they conduct their annual meetings.

Typically, financial planners will collect a client’s data, prioritize their goals, examine their resources, make recommendations, and implement a plan as part of the financial planning process. In an annual review, the financial planner will do much of the same and then some. They will first typically examine a client’s progress against the plan time frames. This sort of monitoring benefits both planners and their clients. Clients get an opportunity to step back from their busy lives and review their goals and confirm that their priorities remain the same Planners have a chance to reconnect with their clients to affirm their positive actions towards goal achievement or to help refocus them so that they don’t get too far off track. And planners get a chance to enhance the relationship and trust.

In some cases, planners and clients will want to establish a regular appointment, meeting on an annual basis, and in some cases on a quarterly or semi-annual basis. Typically, the planner and client will review in these meetings short-term goals, examining what if anything may have changed. In some cases, the planner will make changes to a client’s investment portfolio in light of tactical or strategic asset allocation models in place. In other cases, a planner will suggest changes based on certain life events. The birth of a child or grandchild may require a discussion about 529 plans. A divorce may require changing beneficiary designations on retirement accounts and life insurance policies.

In addition a planner may want to review with their clients new research that has become available in the interim to either confirm rationale or provide a basis to alter a client’s short-term or long-term strategies. For instance, new research that shows the escalating costs of nursing homes or health care in retirement wouldn’t change the goal of “secure long-term retirement,” but it would change the strategy to achieve that goal.

Besides reviewing family developments, planners would also address in an annual review regulatory and other changes that could affect adversely or positively a client’s financial plan. The new Medicare Part D plan or the introduction of the Roth 401(k) could prove useful to some clients. In other cases, the annual review is a chance to review potential changes, changes in the federal estate tax laws, for instance, and devise possible plans of actions.

Planners and clients will often want to measure the “performance” of the investment portfolio as part of the annual review. Typically, performance should be measured against several benchmarks, the most important of which is the client’s own personal goals. For instance, if the planner and the client established that a portfolio should grow by 5 percent per year before taxes then the performance should be measured against that yard stick. To be sure, it’s important that portfolios be measured against standard benchmarks. But only as a point of reference. Meeting personal investment goals is far more important that over performing or underperforming the Dow Jones industrial average. By and large, it’s imprudent for planners and clients to make wholesale changes to a portfolio bases solely on one quarter as well as one year of performance.

In summary, annual reviews provide a chance for planners to examine a client’s long-term goals. These reviews can establish whether the client is generally on course to meet their goals. It’s also a chance to review changes that have occurred and begin to anticipate changes that may occur. It’s a chance to implement any new plan of action that has been developed in light of changing goals or changing performance. And then last, the annual review provides the perfect opportunity to establish future review meetings.

One of the most important worksheets to review is a balance sheet or net worth statement. If reaching all of the client’s goals will require a net worth of $1 million at some point in the future, it is the balance sheet that will demonstrate movement toward or away from that goal. It is a road map. When going out of town, a map is almost always consulted before and during the trip. Progress toward your ultimate destination is noted by each passing town or landmark. It is easy to see when you move off track and what corrections should be made to get you back on the correct path in the least amount of time or distance. The balance sheet measures your progress toward your monetary goal in a finite manner. What the numbers show from year-to-year are not as important as what they show after several years looked at as a whole. Contact our office to schedule your annual financial checkup to assure you achieve your financial goals.


Of all the things facing a man or woman from the moment he or she becomes chief executive officer of a large company, few have a higher priority than determining who will succeed him or her when it becomes necessary.

This is critically important for a large public company with thousands of employees and thousands upon thousands of stockholders. It is no less important for a small company with relatively few employees who depend on it for their livelihood.

While large companies typically have board committees and/or staff whose sole responsibility is to develop and implement detailed procedures for identifying potential CEO’s both within and outside the company, small companies usually have less structured practices.

They may be as simple as choosing an obvious candidate, such as an only child of the founder or, perhaps at least on an interim basis, the most senior employee if the child is too young. “Though inevitable, succession is often the least planned and, consequently, the most perilous event for a family business,” the U.S. Small Business Administration asserts in a paper entitled Family-Owned Business Success: Leveraging Advantages and Mastering Challenges. “History has shown that only one in three firms will survive the transition to the second generation. Only 10 percent of the original group will survive into the third generation of ownership.”

Given the increasingly complex challenges that small and large businesses alike face these days—whether from government regulation, international competition, new technologies, rapid obsolescence of products, or other factors—simple procedures and searches limited to family or current staff may no longer suffice. In order for a business to have a future, serious issues must be addressed and answered over and over again, often with the help of a financial planner or adviser who can help a business owner through the process. Among these are:

  • If a family member is the obvious heir apparent, is he or she really able and willing to handle the job for the indefinite or possible immediate future? “It’s never too early to start” training a successor from within the family, the SBA points out. “By elementary school age, youngsters can stuff envelopes and help with office housekeeping chores. As they mature, their participation can grow accordingly… Experts also recommend that the incoming generation work in the broader business world before permanently joining the family venture.”
  • If the obvious heir apparent is not the best choice, is another family member, perhaps not previously considered, better able and willing to do the job? The decision must be based on the ability of whomever is considered to do the job well, not based on age, relationship, gender, or education. “Separation of family relationships and business is especially essential at this juncture,” the agency advises. “The decision must be based on qualifications regardless of family dynamics.” Business owners also need a backup plan should the family member or other heir apparent fail to run the business appropriately.
  • If no family member is able and willing to lead the company for the foreseeable future, does it make sense to look elsewhere within the company before going outside, or does it make more sense to sell the business?
  • In the former case, would the most senior employee necessarily be the best qualified candidate or would a younger one be a better prospect?
  • If no employee is qualified and willing to lead the company at this point in its history and it would become necessary to go outside, would current employees who considered themselves to be eligible become sufficiently disappointed, risking the loss of their experience?
  • What sort of compensation and benefits package would it take to attract a suitable candidate, and can the company afford to offer it?
  • If the compensation package were to involve equity, does anything need to be done to facilitate consensus among current owners to accept the arrangement? Business owners will need to determine the value of the business as part of any succession planning exercise. Likewise, owners need to structure the sale of the business to children or other successors.
  • Given the importance of retaining principal current employees, what plans must be made (a) to properly communicate to them the rationale for going outside and (b) to enhance compensation and/or benefits to keep them? “These key players need reassurance that they have a place after the incumbent retires ,” the SBA stresses. “Conversely, incumbents need to help them understand that they must enthusiastically support the succession process and the incoming leadership.”

Recommending that family businesses should begin to plan for succession “a decade or more” before the events, the SBA explains, “Having time to discuss issues and options will increase the odds for success while building family acceptance…

“Once the succession process is put in motion, the family needs to set a date when the retiring owner cedes full control to the new leadership.”

Retiring founders need to prepare themselves for the changes, too. They will have to move from a time in which their businesses were their lives, where most of their friends were business associates, and where they had few outside interests to a time in which they may find fulfillment elsewhere, perhaps mentoring, or serving non-profit organizations, charitable organizations, or other businesses. Some may want to start all over again, founding new businesses in new fields. Contact our office to discuss succession planning for your business.


On any given day, you will find not one but several studies that examine the current state of affairs for Baby Boomers, the 77 million Americans born between 1946 and 1964 that are now slowly approaching retirement. And what’s emerging is an interesting, though at times bleak, picture of one of the most analyzed groups in America .

Here are some of the highlights of that research and the financial planning implications.

Retirement security: The 2006 Employee Benefit Research Institute’s annual retirement confidence survey recently reported that just 25 percent of workers are very confident about having adequate funds for a comfortable retirement. In some ways, that should come as no surprise given that half of all workers say they’ve saved less than $25,000 toward retirement, and even among workers 55 and older, more than four in 10 have retirement savings under $25,000. The implication for workers is that they will need to start saving more money toward retirement, with some financial planning experts suggesting that workers might need roughly 20 times their annual pre-retirement spending set aside toward retirement.

What’s more, workers are underestimating the percent of retirement income they might need in retirement. At present, many financial planners suggest replacing at least 75 percent of pre-retirement income in retirement, if not 100 percent given longer life expectancies and increasing healthcare costs.

Retirement is a state, not a date. A new MetLife Mature Market Institute study indicates that 78 percent of respondents age 55-59 are working or looking for work, as are 60 percent of 60-65 year-olds and 37 percent of 66-70 year-olds. Across all three age groups, roughly 15 percent of workers have actually accepted retirement benefits from a previous employer, and then chose to return to work or are seeking work. These employees, who have become known as the ‘working retired,’ represent 11 percent of 55-59 year-olds, 16 percent of 60-65 year-olds, and 19 percent of 66-70 year-olds. Their motives for doing so are mixed, with 72 percent of those age 55-59 (and 60 percent of those age 60-65) citing the need for ‘income to live on’ as a primary reason for working, but among 66-70 year-olds, 72%  percent of employees cited the desire to ‘stay active and engaged’ as a primary reason to work, followed by ‘the opportunity to do meaningful work’ (47 percent) and ‘social interaction with colleagues’ (42 percent). Of note, many financial planning experts suggest that working part-time or full-time during retirement years is one way to make up any retirement income shortfall. But odds are high, about one in two, that some workers will be unable to work during retirement because of an illness or disability, corporate downsizing and restructuring, or the need to provide financial support to a family member of loved one. And it’s also important to understand the tax issues of working during retirement.

In the meantime, much has to change in America to make the workplace of the future “work” for boomers. According to AARP’s “Reimagining America,” pension and other laws need to change for older workers so they don’t get penalized for working longer. Employers need to accommodate the needs of older workers, providing flex-time schedules or low-stress jobs, and older workers need to invest in education and skills-training to meet the demands of a constantly changing market for skills, knowledge and experience.

Healthcare costs: A recent Fidelity Investment study suggests that a 65-year-old couple retiring today will need about $200,000 set aside just pay for healthcare costs in retirement. The 2006 estimate, which assumes that the individuals do not have employer-sponsored retiree healthcare, includes expenses associated with Medicare Part B and D premiums (32 percent), Medicare cost-sharing provisions (co-payments, coinsurance, deductibles and excluded benefits) (36 percent), and prescription drug out-of-pocket costs (32 percent). It does not include other health expenses, such as over the counter medications, most dental services and long-term care. And many employers who offer (or had offered) some level of retiree healthcare benefits, are now phasing out or significantly constraining such benefits because they feel they can no longer afford them in the current competitive global environment. While it is uncertain exactly how much of a burden will be placed on the shoulders of retirees for these costs, it appears likely that the costs will “eat up” an expanding portion of retirees’ savings and investments during their golden years.

Given that the average balance in a 401(k) retirement plan for a Baby Boomer turning 60 is now $100,000, financial planning experts suggest that workers will need to plan on funding retiree healthcare expenses in a variety of ways, such as health savings accounts. In addition, those who are able may need to continue working for employers that provide health insurance or retiree health insurance plans.

Volunteerism: Half of Americans age 50 to 70 want jobs that contribute to the greater good now and in retirement, according to a MetLife Foundation/Civic Ventures New Face of Work Survey. According to that survey, Baby Boomers will invent not only a new stage of life between the middle years and true old age but a new stage of work. “Boomers may give back as volunteers, but this survey suggests that their most important contributions to society will likely be through work,” said the study’s author. The planning implication is that Boomers should consider volunteering now, if able, to get a sense of what sorts of work and organizations will best suit them in retirement.

The reality for Baby Boomers is that they’re living longer, fuller lives. They need the help of planners now more than ever. 

Contact our office for a FREE investment analysis and FREE initial consultation concerning your retirement resources.


Launched in 1935 during the Great Depression as a principal component of Franklin D. Roosevelt’s New Deal recovery program, the Social Security System has earned an unquestionable reputation for the reliability of its stream of monthly checks to retirees, the nation’s first comprehensive source of retirement income.

But did the laws that authorized the checks and ensured their reliability also:

  • Permit the checks—based on your lifetime income —to be large enough to sustain seniors in comfortable retirement?
  • Require Social Security checks to be taxed too much by the same Treasury Department which issued them?
  • Reduce the checks too severely for those who needed money before becoming 65?
  • Enable beneficiaries to get back all of the money they had paid into the system over the years?

While these questions—and the question of the system’s continuing reliability as the ratio of beneficiaries to taxed active workers increases—are debatable and debated by lawmakers , the most baffling for many individual workers as they plan for the approach of retirement is: when do you start receiving Social Security checks?

The answer, partly rooted in changing regulations, is not easy. Nor is it the same for all individuals.

Yet, it is very important. On it depends not only when you start to receive checks, how large your checks will be—the earlier you start, the smaller your checks—and how much you may earn from other work once you start, but also how much net Social Security income you will have left after income taxes.

To understand how these things are determined, you first have to understand the regulatory concept of your “normal retirement age” (also called your “full retirement age”) at which your retirement benefits equal your “primary insurance amount.” For those born in 1937 or earlier, it is 65. For those born in 1960 or later, it is 67. For those born in 1938 through 1959, it is in-between. (Useful tables which spell out this and other relevant regulations appear on the Social Security Administration’s Web site,

If you decide to start withdrawing Social Security before your “normal” retirement age, you may retire as early as age 62, but your benefits may be reduced as much as 30 percent if you were born after 1959 or 25 percent if you became 62 in 2005—a reduction that shrinks your monthly checks permanently.

If you decide to defer getting Social Security past your “normal” retirement age (delayed retirement credits), your benefits may be increased by percentages depending on when you were born: from 3 percent if you were born in 1917-1924 to 8 percent if you were born in 1943 or later. You would receive your largest benefit by retiring at 70.

Whatever the SSA determines you should get monthly (to be further adjusted annually for inflation unlike most private sector pensions) may be (further) reduced if you get work for pay before you reach your “normal” retirement age: $1 in benefits for each $2 you earn above an annual limit. Last year, that limit was $12,000; this year, it’s $12,480. In the year you will reach “normal” retirement age, the reduction is less—$1 in benefits for each $3 you earn above $33,240 in 2006, until you reach the point at which you can earn all you are able to without penalty. This point is reached once the recipient arrives at their normal retirement age.

For example, a retiree with earned income of $25,000 and a Social Security benefit of $1,000 per month would receive just $478 each month after a reduction due to earnings. Done with the SSA, you now emerge on the radar screen of the Internal Revenue Service, which is required to get its share and finds you an especially fertile target if you have substantial income beyond Social Security. A SSA Web site calculator helps you to understand how the earnings test would apply to you.

If you are filing a federal income tax return as an individual and have “provisional income”—defined as adjusted gross income plus nontaxable interest (such as interest from tax-exempt bonds and income dividends from municipal bond mutual funds) plus 50 percent of your Social Security benefits—between $25,000 and $34,000, you may have to pay income tax on that 50 percent. If your combined income exceeds $34,000, up to 85 percent of your benefits may be taxable.

If you file a joint return and you and your spouse have provisional income (as defined above) of between $32,000 and $44,000, you may have to pay tax on 50 percent of your Social Security benefits. However, up to 85 percent of your benefits become taxable when your combined income exceeds $44,000. This is a complex rule, so consider contacting the Social Security Administration or your tax adviser for more information.

Contact our office for a FREE initial consultation concerning planning for social security.


Selecting a financial planner has never been an easy task. Yes, experts have long advised checking such things as a person’s experience and education, as well as their regulatory record. But in recent years, selecting a planner has become especially difficult given so many financial professionals, including stockbrokers, insurance agents and bankers, often provide similar services, such as comprehensive financial plans and investment products.

Resolution of an upcoming court case involving the Financial Planning Association® (FPA®) and the Securities and Exchange Commission (SEC), may soon make it easier to tell the difference between a financial planner and other types of financial and investment representatives.

In the meantime, however, experts say there are a number of ways to distinguish a financial planner from other types of financial professionals.

Consumers should focus on the following issues: regulation, fiduciary responsibility, disclosure and values. First, the issue of regulation. The SEC regulates the actions of registered investment advisors (RIAs), some of whom are financial planners and some who are also investment advisers who do no financial planning. By contrast, NASD regulates the actions of registered representatives, or what are more commonly called stockbrokers, and insurance agents who deal with securities and mutual funds.

The SEC regulates the actions of financial planners, who must comply with the Investment Advisers Act of 1940. Under that Act, financial planners must provide—and periodically update—clients and the SEC (or state securities regulators) with information about themselves and their records; brokers are required to provide much less information. Financial planners also perform more comprehensive services for clients, including recommendations of appropriate asset allocations. Brokers need only recommend (and handle orders for) securities purchases and sales, being careful to limit recommendations to those which they consider “suitable.”

In short, RIAs who are financial planners are obligated to place the clients’ interests above their own. Stockbrokers were traditionally exempt from registering under the 1940 Act and were exempt from fiduciary responsibility when buying and selling securities on behalf of their clients, including non-discretionary accounts. Therefore stockbrokers need not place their clients’ interests above their own but merely meet the standard of “knowing their customer” and making “suitable” recommendations. In many cases, stockbrokers or insurance agents who provide a financial plan or investment plan do so as an “incidental” service. According to FPA, the current SEC rule presently allows stockbrokers to avoid the fiduciary and disclosure standards of the 1940 Act while being able to provide the same services as financial planners. The SEC presently prohibits stockbrokers from calling themselves financial planners, although it allows them to use similar titles such as financial consultant and financial advisor, and to provide fee-based advisory services such as retirement planning under more lenient broker-dealer sales regulations.

As for disclosure, financial planners who are registered as RIAs with the SEC are required to disclose conflicts of interest and their qualifications.

Of note, financial planners (and others) registered under the Investment Advisers Act face the risks of higher liability for violating fiduciary and disclosure standards; brokers registered only under the Securities Exchange Act of 1934 are not considered fiduciaries and do not have to disclose as much about themselves and their businesses. Insurance agents who call themselves financial advisers may face even less regulatory oversight than brokers.

When searching for a financial planner, consumers might consider asking whether the financial planner is legally required to act in the client’s best interest, and whether the broker’s recommendations are “solely incidental advice” or not. This is especially important given that both financial planners and stockbrokers may derive compensation from fees based on percentages of assets managed and/or hours of consultation and related services.  Brokers offering fee-based advice must also provide a consumer warning statement to new clients that the account is a brokerage, and not an advisory account.

When searching for a planner, it’s typically a good idea to take advantage of resources that provide access to financial planners. FPA’s PlannerSearch, which can be found at, is one such service. In addition, FPA has several consumer publications designed to help people choose the right planner to meet their needs. FPA suggests that consumers request a written disclosure document from the planner, such as the Form ADV. Consumers can also review the NASD Web site to find disciplinary action taken against registered persons. The Form ADV answers many questions, including those regarding a planner’s work, disciplinary actions, experience, compensation, method of planning, areas of specialization, and business relationships the planner has that might present a conflict of interest. Consumers may also want to ask whether a potential planner will provide an Agreement of Engagement Letter documenting and describing all services to be provided and all fees that will be paid by the client — and/or all compensation to be received by the planner from “outside” sources. 

Some further issues to consider when selecting a financial planner:

  • Experience with the client’s issues
  • Credentials and education
  • Price and methods of compensation
  • Investment philosophy
  • Approach to financial planning
  • Ask for at least 3 existing client references

Since trust is at the heart of any working relationship with a planner, it’s important that the consumer work with someone whose actions and words are consistent with the letter and spirit of laws and rules related to financial planning.  1st Securities Management (A Registered Investment Advisory Firm-CRD# 135757) is a registered Investment Adviser under the Investment Advisers Act of 1940.  Terrence L. McMullen is a Certified Public Accountant and Certified Financial Planner. 

Contact our office for a FREE investment analysis and FREE initial consultation concerning your personal finances.