Mr. Market's Wild Ride

People in the crypto space like to use the acronym "FUD" (fear, uncertainty, and doubt) when referring to negative happenings in investments or financial markets. It's safe to say FUD has crept into most markets. Caused by a reaction to central bank inflation, high debt levels, weak economic growth, geopolitical tensions, incompetent political parties, and continual bureaucratic intervention.

Nine days before Black Monday (the initial October 28, 1929 crash) Yale economist Irving Fisher said “Stock prices have reached what looks like a permanently high plateau.” It’s one of the worst market readings ever. Of course, our markets had a very rough decade. Nobody knows what that market is going to do over three days or three years… but we have a pretty good idea of what will happen over three decades. Time IN the market is wise, timing the market is human but foolish. While invested, we should be prepared for anything.

Major market movements present opportunities to reconnect with the basic principles of investing, such as having (and sticking with!) an investing strategy, diversifying one's investments, letting the magic of compounding work for you, and keeping investment expenses low. These principles are important because nobody knows what is going to happen next. Legendary investor, and perma-bear, Jeremy Grantham thinks we may have a Wild Rumpus, but he's been calling for the bubble to burst since 2016. Maybe he's correct this time. Again, nobody knows what is going to happen next, so the best course of action is to stay calm and stick to one's plan.

Here are the questions and topics I encourage investors to think through on a regular basis - not just when there's FUD in the financial markets:

Goals

• What is this specific money for?
  (What Values, Intentions, Purposes, or Goals does it support?)

• Have your goals changed?
  (We should always match our investments to specific goals.)

• What is the timeline? (Your investment and goal should always be connected to a timeline.)

Risk

• Is your real Risk Preference at the moment a lot lower than your Risk Tolerance when thinking about a possibility? Is it a lot scarier now that it is happening? There is the risk your wallet can mathematically handle (Risk Capacity), the risk your head thinks it can handle, and the risk your stomach can actually handle. You have to find the optimum point in that triangle for you and your spouse, and it is usually at the lower end.

Portfolio & Planning

• Is it time to rebalance your portfolio? (You can also rebalance by adding.)

• Is it a good time to invest a little more?

• Does this show you that you need some liquidity?

• Are you SURE you want to sell into weakness and realize what is right now probably a temporary paper loss?

• Asset Class Diversification helps protect against many other returns you don’t see like the sequence of return risk. (Yes, you need bonds, cash, and other non “growth” assets. Retirees need even more fixed income. You draw from the well that is currently full.) 

• If you have a lot of individual investments you should be looking at tax-loss harvesting, your investment manager should have already done it.

• Crypto markets are highly volatile, that is why they can return so much. High risk, high reward- but high risk. This is probably the first true crypto winter, and that’s okay. There is a real utility and infrastructure built into the system, the exchange rails are operating properly, and communities are going about their business. The value of the token dropping because of irrational fear, or the value skyjacking because of irrational exuberance does not change the underlying utility and value. Flippers and bubbles cause disruption, but they don't stop the real work from being done underneath. (Here's a good short article on viewing crypto risk in relation to other assets.)

• Market timing is usually a fool’s errand. Here's a good (fictional) example.

Stick To Your Plan

If you're a client, you already have a financial plan in place and you know you can always contact me to discuss the things mentioned above.

Not a client? Feel free to schedule an initial consultation if you want to talk about creating a financial plan.

Your Employer is Going Public and You Have Restricted Stock Units. Now What?

If you work for a privately held company, you may receive additional non-salary benefits, such as restricted stock units (RSUs). As of September 10, 2020, the following companies, which all offer RSUs to employees, are expected to have an IPO or a direct listing before the end of the year:

1.     Airbnb: Remember in The Before Times when we could travel? The company is still expected to go public in 2020 despite being negatively impacted by the COVID-19 pandemic.

2.     Asana: A software-as-a-service (SaaS) workplace and team collaboration tool that works kind of like a CRM is planning to go public via a direct listing.

3.     DoorDash: An on-demand food delivery platform, which is scheduled to debut in the fourth quarter of 2020.

4.     Palantir Technologies: A data analytics company, which is (a) named after a magical artifact from The Lord of the Rings and (b) skipping the IPO in favor of a direct listing in fall 2020.

5.     Snowflake: A cloud data company that sounds like the fictional company Gryzzl from Parks and Recreation (“It’s the cloud for your cloud”).

6.     Unity Technologies: A company that creates software for video game developers to build interactive, real-time 3D content.

RSUs are wonderful things that can dramatically change your life, allowing you to increase your emergency fund, pay off debt, buy a home, or help you achieve any of your other financial goals. The rules around RSUs can be difficult to understand, so it’s a good idea to educate yourself before you have to make any decisions.

How Your RSUs Work

It has become common practice for companies to use “double trigger” vesting. This means two requirements must be met before your RSUs turn into company stock:

1.     A service-based requirement: You must work at the company for a certain period of time in order to pass vesting dates. For example, you may receive an initial grant of RSUs up front, with the remainder vesting monthly or quarterly over 3-to-5 years.

2.     A liquidity event: This means the company goes public, either through a traditional IPO or a direct listing.

Once both conditions have been met, any vested RSUs you own will turn into actual shares. Now you have a new dilemma: What should you do with your vested shares? The answer is that it depends on the company’s rules. For example, there may be a lock-up period that dictates the number or percentage of shares that can be sold as well as when you can sell the shares.

The bottom line is that the company’s rules and your financial situation are unique, so there isn’t a one-size-fits-all approach to the handling of your shiny, new shares.

Should You Sell or Hold?

Again, the answer to this question is that it depends. Perhaps the best way to approach this is ask yourself these questions:

1.     Do you need money to achieve your financial goals? If so, then you should consider selling your shares.

2.     If you don’t need have an immediate need for the money, are you comfortable maintaining a potentially large portion of your net worth in the stock of your employer? If so, just be aware of the risks involved with having a concentrated position in a company that also happens to provide your salary. The share price could rise, but it could also fall. Don’t be greedy, especially if you have additional RSUs that will vest over time.

3.     If you don’t need the money and you don’t want to have a concentrated position in your employer’s stock, what else would you do with the money? Reinvest it elsewhere? Donate some or all to a cause you believe in? Think about this before you take action.

Taxation of RSUs: Two Parts

I’m sure your eyes glazed over as soon as you read the phrase “taxation”. Hang in there, this next part’s not that bad. There are two taxable events you need to be aware of:

1.     At vesting (taxed as earned income): Once the double trigger vesting conditions have been met, the company is required to deliver the vested shares to you. When that happens, the shares will be taxed as ordinary income. Some of the shares, typically 22%, will be withheld to cover the taxes you owe. Keep in mind you may need to have additional earnings withheld, or sell additional shares of stock, in order to cover any remaining tax liability.

2.     At sale (taxed at short or long-term capital gains rates): Any remaining shares you have can be sold, if allowed by your lock-up agreement, or held. If you sell them in less than 12 months, and there’s a gain, you’ll owe tax on the gain at your ordinary income rate. If you hold the shares for greater than 12 months, and there’s a gain, you’ll owe tax at the preferred long-term rate.

Get Help

If you don’t have the time, knowledge, or inclination to deal with your RSUs, I highly recommend hiring a CPA and/or a Certified Financial Planner. These professionals can help you determine how much tax you owe on your RSUs, when you need to pay it, what to do with the windfall, and how to plan for your future.

Hang In There

If 2020 were a Marvel movie, this might be the moment when the Avengers show up and save the day.

Wishful thinking, I know.

Unfortunately, it appears the United States isn't in wave #2 of the pandemic because we never really left wave #1. Due to the uncertainty, no one really knows how financial markets or the economy will react in the coming months.

In a couple weeks I'll share my thoughts about the second quarter of 2020. In the meantime, here are some thoughts about the second half of the year.

Reasons for Optimism

1. Solid economic foundation
   The U.S. economy was healthy leading into the COVID-19 crisis. The ensuing recession was caused by an external shock, not a typical end to the business cycle driven by economic overheating. This could hold promise for the recovery.

2. Attractive value vs. bonds
   With bond yields down (and prices up), the gap in the value between stocks and bonds, as reflected in the equity risk premium, is wide. This suggests investors can potentially realize greater reward from stocks.

Reasons for Caution

1. Hidden vulnerabilities
   The lockdown-driven decline in economic activity and spike in unemployment has left the U.S. economy more exposed to risks. It remains to be seen whether there are any hidden vulnerabilities in the system, including hiccups in reopening progress. Markets do not like uncertainty.

2. Risk of second wave of infection
   COVID-19 is a novel virus, meaning it has no exact precedent. A new round of infection is possible and its burden on the health care system and potential for renewed closures is unknown. The upside is that countries would enter a second wave wiser and more prepared, with availability of greater testing, contact tracing, protective gear and drug interventions.

3. Heightened geopolitical tensions
   The U.S.-China relationship is further strained since the COVID crisis, defined by greater competition and less cooperation. Bouts of market volatility are likely should tensions flare. In addition, U.S. onshoring and the likely move toward deglobalization will have margin and inflation implications down the road.

4. Absolute valuations are not cheap
   Stock prices are attractive relative to bonds, but by the most common measure of valuation, P/E ratio, they are not cheap. Stock prices relative to 12-month forward earnings per share stood at 21x at the end of May. Pandemic-related uncertainty has made the earnings outlook for many companies blurry at best.

For better or worse, it appears very few people in the U.S. are prepared to endure another shutdown. So, a few reminders:

1. Wear a mask.

2. Wash your hands.

3. Get some exercise.

4. Wear a mask.

Reading / Watching / Listening / Playing

Here's what's keeping me busy in my spare time:

• The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton. To some, a book that suggests deficit spending isn't the monster we've been taught to fear is heresy. I haven't made up my mind yet, but I'm open to learning more about Modern Monetary Theory (MMT). In July, I'm joining a book club to read & discuss this book.

• Floor is Lava on Netflix. I'm watching this ridiculous game show with my kids. Full disclosure: I was the one who found this series and lobbied to watch it with my kids. It's both dumb and fun, which is just what I need at this point in 2020.

• Revisionist History, season five. Malcolm Gladwell's podcast returned last week to start its fifth season. So far, Gladwell continues to pull together seemingly different stories or facts with fascinating results. I find it best to enjoy this during a mid-day walk when I need to clear my head.

• Assassin's Creed: Odyssey. We won't be traveling this year, for obvious reasons, so I've been enjoying this game on my Xbox One. I may not be able to travel to modern Greece, but at least I can explore ancient Greece via Ubisoft's amazingly well-rendered game.

Ongoing Volatility in the Financial Markets

There's no way to spin this: Monday was a rough day for investors.

• The Dow was down 7.8%

• The S&P 500 fell 7.6%

• The Nasdaq Composite slid 7.3%

Reminder: Take a deep breath. And another. It's all going to be okay.

Health Crisis: Downturn to Recovery

Historically, downturns caused by health crises don't last forever. The charts above show the SARS and Zika crises from 2003 and 2016, respectively. In both cases, the sell-off trough lasted for much of the first quarter before stocks resumed their upward trend.

I can't tell you when things will turn or by how much, but my expectation is that investors bearing today's risk will be compensated with positive expected returns. Unfortunately, history has shown no reliable way to identify a market peak or bottom. This means it is unwise to make market moves based on fear or speculation, events difficult and traumatic events transpire.

In other words, stick to your financial plan.

It's Okay to Be Nervous

Note: My friend and fellow financial planner Will Kaplan, CFP® wrote the following three paragraphs. I couldn't improve upon them, so I asked him if I could include them here. Enjoy.

Feeling nervous as the market drops is normal. That is part of our biological response to bad news. As humans we feel bad news about twice as intensely as we experience good news. It's just how we are wired and part of why being investors is so challenging.

Courage does not mean that you are not afraid. Courage is doing something even though it is scary. It is okay to be afraid, but fear should not be our only guide.

Discipline is remembering that we know markets go down from time to time and remembering that we have a plan for when they do. We rebalance the portfolio (when necessary) to maintain the asset allocation. We want to be buying when markets are down and selling when markets are up. The challenge isn't in knowing what to do, but in being disciplined and not allowing our emotional response to derail our plan.

One Last Thought

The late Jack Bogle, founder of Vanguard, once commented in other periods of heightened volatility in the markets, "The expression is 'don't just stand there, do something' and the best rule I think is 'don't do something, just stand there.'"

While the news in the short-term may get worse before it gets better, long-term perspective and patience are necessary to ride out short-term volatility in the markets. Hang in there.

Key Takeaways of the SECURE Act of 2019

The SECURE Act was signed into law on December 20, 2019. The bill, aimed at strengthening retirement security for Americans, features a mix of good and bad. Here are the most important takeaways, along with some commentary:

The Act pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70 1/2 to 72, and allows traditional IRA owners to continue making contributions indefinitely

In case you're unfamiliar with the RMD, it's basically a forced distribution made from one's retirement account. The government needs the taxes you've been deferring for years! Here's how RMDs work:

Historically, the initial RMD had to be made the year you turned 70 1/2. You could postpone taking that initial payout until as late as April 1 of the year after you reached the magic age. However, you would then have to take your second RMD by December 31 of the same year. Since RMDs are taxed at ordinary income rates, one would incur a large tax bill if both RMDs were taken in the same year. In order to avoid this double-whammy, it's typically a good idea to spread the RMD over two years (take the first RMD in the year you turn 70 1/2 and the second RMD during the next year). Confused yet? 

While the SECURE Act increases the age at which you must begin taking RMDs from age 70 1/2 to 72, this favorable development only applies to those who turn 70 1/2 after 2019. If you turned 70 1/2 during 2019, you're still required to begin your distributions under the old rules.

Under the new rules, you still have the option to postpone your first RMD until April 1 of the year after you turn 72. If you decide to postpone, remember the second RMD must be taken by December 31 of that same year. In order to avoid a large tax bill consider spreading the RMDs over two years.

The SECURE Act makes it easier for small business owners to set up "safe harbor" retirement plans that are less expensive and easier to administer

Small businesses will be able to join a pooled employer plan (called a MEP or Multiple Employer Plan), which is meant to reduce the cost of offering retirement plans to employees of small businesses. Bonus: If the employer plan has an automatic enrollment feature, they get a small tax credit.

Part-time workers will be eligible to participate in an employer retirement plan

While this is generally good news, the rules are somewhat restrictive: Employers have to include eligible part-time workers in the 401k plan. In this case, an "eligible employee" is defined as one that completes three consecutive years of service, working for 500 hours per year.

The Act mandates that most non-spouses inheriting IRAs take distributions that end up emptying the account in 10 years

Historically, beneficiaries could elect to take distributions from an IRA over their life expectancy. This "stretch IRA" feature has been scrapped for non-spouses in the SECURE Act. The maximum number of years a non-spouse beneficiary can take distributions is now 10 years. This is essentially a tax-grab by Congress.

The Act allows 401k plans to offer annuities

This was a big win for insurance companies - and their highly-paid lobbyists. I am not at all happy about this provision. I believe it's a bad deal for consumers because high-fee and commission annuities can now be sold to sponsors of 401k plans. Annuities aren't always bad, just mostly bad.

My New Year's Resolutions for 2020

Here's what I want to accomplish in 2020

At the start of every year I like to come up with a list of New Year's resolutions. I believe I'm more likely to achieve, or at least come close to achieving, my stated goals. In fact, there may be some truth to my belief: According to a study in the Journal of Clinical Psychology, 46% of participants who made New Year's resolutions were likely to succeed, over ten times as among those deciding to make life changes at other times of the year.

Feel free to share your New Year's resolutions with me!

Here's what I want to accomplish in 2020:

1. Resume tracking what I eat. Around March of 2019 I faced the sad reality that I need to do something about the slow creep of weight gain that started affecting me in my late 30s. I started tracking and logging what I ate in the MyMacros+ app. At first this wasn't easy and it wasn't fun. However, after a few weeks I started to get the hang of weighing and logging my foods. I lost some weight and started to feel better. The only downside I found was that I had to buy new jeans because my old ones were too loose after losing weight (that's a good problem to have). The holidays derailed my progress, but I'll resume tracking now that all the celebrating is over until later this year.

2. Continue CrossFit training ~3 times/week. Watching what you eat is only part of the equation; training to preserve muscle mass and improve mobility is equally important. I started CrossFit a few years ago and absolutely love it. Are the intense workouts for everyone? Definitely not. But in my 44 years this is the first workout regimen that hasn't allowed my body to plateau.

3. Create more art. I love to paint and draw. Unfortunately, it's easy to get distracted by, among other things, life, numerous streaming services, and social media. I want to resume practicing with oil paints and finally finish some projects.

Coming Next Week

Next week I'll provide you with a summary of the SECURE Act of 2019. And in case you're wondering what SECURE stands for...Setting Every Community Up for Retirement Enhancement. Because every tax law needs an unwieldy acronym.

Another Downside of Aging: Elder Abuse

Yet Another Downside of Aging

If you're reading this hoping for a guide to abusing the elderly, such as Elder Abuse for Dummies, you're (A) out of luck and (B) a monster. 

On the other hand, if you're looking for some tools to help fight elder abuse, then this post may be helpful.

Elder Abuse In The News

In case you didn't know it, I'm a big fan of all things Marvel. That's why I was sad to see reports of elder abuse against Marvel founder Stan Lee, who died in November of 2018.

Recently, a former business partner and caretaker of Mr. Lee's was charged with three felonies, including false imprisonment, grand theft (possibly $5 million!), and a misdemeanor charge of elder abuse.

Surprisingly, these crimes seem relatively normal when compared to the one perpetrated by another ex-manager of Mr. Lee's. In that case, the ex-manager was sued for having "a nurse inject Lee with a syringe and collect many containers of blood", which were then sold by a fictitious charity for thousands of dollars.

How low do you have to be to steal and sell your employer's blood? Perhaps the better questions are who bought the blood and what did they do with it? Unless it's some genius who is attempting to clone Stan Lee, these questions are better left unanswered.

Elder Abuse Facts

Mr. Lee was a celebrity, so his case makes for interesting reading and generates headlines. Unfortunately, most cases of elder abuse don't make the news. Here are some statistics from the National Council on Aging:

• Approximately 1 in 10 Americans age 60+ have experienced some form of elder abuse

• It's possible only 1 in 14 cases of abuse are reported authorities

• Two-thirds of abusers are adult children or spouses*

*I'll be keeping an eye on you, Heidi Kotzian

What You Can Do

If you suspect an older adult is being mistreated please contact your local Adult Protective Services office. Residents of Washington, D.C. can contact the Adult Protective Services 24-hour hotline at 202-541-3950.

Mom & Dad: If you're reading this, don't be alarmed when I show up for a visit with a syringe and many containers.

Stay Calm And Focus On Your Plan

Volatility and Anxiety

As of today, December 7, 2018, the US market (as measured by the S&P 500 Index) has fallen about 6% over the last three months, resulting in many investors wondering what the future holds and if they should make changes to their portfolios. While the S&P 500 Index may still be in positive territory for the year-to-date, it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.

Reacting Impacts Performance

If one was to try and time the market in order to avoid the potential losses associated with periods of increased volatility, would this help or hinder long-term performance? If current market prices aggregate the information and expectations of market participants, stock mispricing cannot be systematically exploited through market timing.

Translation: It is unlikely that investors can successfully time the market, and if they do manage it, it may be a result of luck rather than skill.

Further complicating the prospect of market timing being additive to portfolio performance is the fact that a substantial proportion of the total return of stocks over long periods comes from just a handful of days. Since investors are unlikely to be able to identify in advance which days will have strong returns and which will not, the prudent course is likely to remain invested during periods of volatility rather than jump in and out of stocks. Otherwise, an investor runs the risk of being on the sidelines on days when returns happen to be strongly positive.

The following chart helps illustrate this point. It shows the annualized compound return of the S&P 500 Index going back to 1990 and illustrates the impact of missing out on just a few days of strong returns. The bars represent the hypothetical growth of $1,000 over the period and show what happened if you missed the best single day during the period and what happened if you missed a handful of the best single days. The data shows that being on the sidelines for only a few of the best single days in the market would have resulted in substantially lower returns than the total period had to offer.

The Takeaway

While market volatility can be nerve-racking for investors, reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful. By adhering to a well-thought-out investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty.

In other words, stay calm and stick to your plan.

Mr. Market's Wild Ride

The Short Version

Greetings! I know you're busy, so I'm going to summarize this post for you:

1. Calm down.
2. Markets go up and down. It's normal.
3. Stop watching and/or listening to what passes for financial news on networks such as Bloomberg, CNBC, Fox Business, etc.
4. No one knows why markets rise and fall. Anyone who claims to know is a liar.
5. Stick to your financial plan. Don't have one? Get one. You don't have to be rich to work with a financial planner.

The Parable of Mr. Market

The recent ups and downs in financial markets have seriously rattled investors. Well, the downs rattled investors because no one likes the downs. It's not fun watching one's retirement savings or other investments drop in value. Unfortunately, we're stuck with declines because markets don't always go up. Markets are made by people and people are irrational, greedy, and prone to panic.

The market fluctuations and the subsequent flurry of news, analyses, and pundit-speak made me recall the parable of Mr. Market, which Waren Buffett shared with investors in his 1987 letter to shareholders of Berkshire Hathaway. Below, you'll find an excerpt of that letter, which includes the parable of Mr. Market. I used bold text to emphasize what I believe to be the most important takeaway of Mr. Buffet's story. Have at it.

"Ben Graham, my friend, and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest in him.

Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, “If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.”

Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging, and betas. Their interest in such matters is understandable since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben's Mr. Market concept firmly in mind."

Perspective

Last week, after the markets started bouncing around, I shared a chart of the Dow Jones Industrial Average index on my personal Facebook feed. I believe it's worth sharing again.

The Dow Jones Industrial Average index over the last 10 years.

I don't want to come across as cold and uncaring. Fluctuations in markets can have serious financial consequences depending on how much you have saved as well as the stage of life you're in. The best thing you can do is create - and stick to - a financial plan because no one can predict why or when markets will rise and fall.

Listening / Playing / Reading / Watching

Here's what has my attention right now:

1. Neverwhere, by Neil Gaiman. In a previous post, I mentioned how much I enjoyed listening to Gaiman's American Gods. I highly recommend Neverwhere, too. Bonus: Gaiman narrates the audiobook edition and his performance is fantastic. I would listen to him narrate the phone book. If phone books were still a thing.
2. Morning Star, by Pierce Brown. I'm pretty sure Brown's series is considered YA (young adult) literature and I don't care. Morning Star, which is book three in the Red Rising trilogy, is just plain fun. If Greek mythology, The Hunger Games, the Harry Potter series, and Game of Thrones had a baby, it would be the Red Rising trilogy.

You Know You Need a Financial Advisor When...

There are a few sure-fire signs that you need a financial advisor in your life. Whether you are just starting out in your first job or on the other side of retirement, there are financial considerations at each stage of life that a financial advisor can help you understand and navigate.

If you haven’t hired a financial advisor, but are wondering if now is the right time, there are a few signs that may indicate now may be the right time to start.

·      You’re not sure you’re saving enough for retirement. Even if you are saving for retirement, it may not be enough to support your needs and lifestyle in retirement. You don’t want to be in retirement and then find out that you didn’t save enough. Better to consult with a financial advisor earlier in your life to put you on a plan that will provide you with enough income to support your retirement lifestyle.

·      You don’t know where all your money is going. If you wind up scratching your head every month wondering where all your hard earned income has gone, it’s time to work with a financial advisor. A financial advisor can help you understand your current spending habits and even help you adjust them to better align with your values and your goals.

·      You’re not sure how to make a big financial decision. Whether you’re getting married, buying a home, or considering long-term health care options, a financial advisor can help you navigate large financial decisions. There are large financial decisions we face at every stage of our life and you don’t need to make them in a vacuum. A financial advisor will help you understand your financial options so that you can make the best possible decision for you and your specific situation.

·      You don’t know what your finances are working toward. A financial advisor is going to help you set financial goals for your present and your future. He or she works with you so that you can align your money with your values and help you create the life you want to live.

·      You live beyond your means. Financial advisors are not just for people with a ton of investible assets anymore. Besides, even the highest wage earners can find themselves living beyond their means, too. If you find that you are regularly outspending your income each month, even when you have plenty of income coming in, it’s time to hire a financial advisor.

If you identified with any of these signs, I encourage you to consider working with a financial advisor. There is a lot of value a financial advisor can bring to your financial life beyond retirement planning and investment management. 

My Answers to the 19 Questions You Should Ask Every Financial Advisor

In case you missed it, The Wall Street Journal's Jason Zweig recently wrote an article titled "The 19 Questions to Ask Your Financial Advisor". Zweig, who writes a fantastic weekly column titled "The Intelligent Investor", wants consumers to receive good financial advice. To him, that means financial advisors, stockbrokers, and insurance agents should always act as fiduciaries, which means they should act in their clients' best interests.

I wholeheartedly agree. Honestly, I can't believe this is even up for debate.

Some background: Last year, the U.S. Department of Labor released a rule which, once implemented, will require all financial professionals who provide retirement planning advice to act as fiduciaries for their clients. In addition, financial professionals must disclose all conflicts of interest and clearly disclose all fees and commissions paid by the client. Financial professionals who work on commission, primarily brokers and insurance agents, will be impacted the most. In general, these are the professionals unhappy with the rule. Unfortunately, the deadline for compliance has been delayed from January 1, 2018 to July 1, 2019. In the meantime, changes to the rule may severely weaken the rule or kill it entirely.

So how do you determine whether or not a financial planner will act in your best interest? Ask an advisor the right questions and listen for the best answers. Below, you'll find 19 questions to ask an advisor. You'll also find the answers, in parenthesis, Jason Zweig suggests you listen for. I've also included my answers to the questions, which are in bold.

Use these questions when interviewing an advisor - and interview at least three. Good luck with your search!

1. Are you always a fiduciary, and will you state that in writing? (Yes.)

Yes.

2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? (No.)

No.

3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors? (No.)

No.

4. Will you itemize all your fees and expenses in writing? (Yes.)

Yes.

5. Are your fees negotiable? (Yes.)

Yes.

6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets? (Yes.)

Yes.

7. Can you tell me about your conflicts of interest, orally and in writing? (Yes, and no adviser should deny having any conflicts.)

Yes.

8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients? (No.)

No.

9. Do you pay referral fees to generate new clients? (No.)

No.

10. Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance? (Here the best answer depends on your needs as a client.)

Investment management is important, but I believe true financial planning means looking at all aspects of a client's financial life.

11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? (No.)

No.

12. What is your investment philosophy?

I believe it is impossible to consistently beat the market. Therefore, I use passive investments, such as low-cost index funds, in client portfolios.

13. Do you believe in technical analysis or market timing? (No.)

No.

14. Do you believe you can beat the market? (No.)

No.

15. How often do you trade? (As seldom as possible, ideally once or twice a year at most.)

As seldom as possible, typically less than twice a year.

16. How do you report investment performance? (After all expenses, compared to an average of highly similar assets that includes dividends or interest income, over the short and long term.)

After all expenses on a quarterly, 1-year, 3-year, and 5-year basis. I can compare performance to a benchmark, such as the S&P 500 Index, but I prefer not to because it's not an apples-to-apples comparison.

17. Which professional credentials do you have, and what are their requirements? (Among the best are CFA [Chartered Financial Analyst], CPA [Certified Public Accountant] and CFP, which all require rigorous study, continuing education and adherence to high ethical standards. Many other financial certifications are marketing tools masquerading as fancy diplomas on an adviser’s wall.)

I hold the Certified Financial Planner designation (CFP®).

18. After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term? (If I told you anything over 3% to 4% annually, I’d be either naive or deceptive.)

I cannot guarantee a rate of return. Conservatively, 3% to 4% is realistic, but markets have their ups and downs.

19. Who manages your money? (I do, and I invest in the same assets I recommend to clients.)

I do and I use the same investments I recommend to my clients.

Practicing What I Preach

This week, while having lunch with a friend and mentor, I questioned whether or not I really need to join a gym (and thus pay a monthly membership fee). Could I not continue my DIY approach? After all, I trained for and competed in triathlons for 10 years, so I'm pretty sure I know what I'm doing.

Thanks to an astute observation from my mentor, I had an epiphany: Although I consistently encourage people to invest in themselves, I wasn't following my own advice.

I believe it's almost always worth the expense to invest in, among other things, education, fitness, and of course financial planning. Okay, I'm definitely biased when it comes to financial planning because that's how I make a living. But it's worth it, I swear!

Sure, You Can Do It Yourself. But Will You?

With few exceptions, there's very little we can't do ourselves. For example, I had no idea how to perform maintenance on the commercial-grade plumbing hardware in our house, but after watching a few videos on YouTube I was ready to tackle the job. Unfortunately, I don't think I should try that if I need surgery.

I certainly could continue to workout on my own and save the cost of the monthly gym membership, but I know I'll work harder and have better results if I actually go to a gym. I believe the same thing applies to financial planning. Sure, you can do it yourself. But will you?

My point is that sometimes we can't do it ourselves. Sometimes the outcome is better when we have help. Clint Eastwood (as Dirty Harry) once said, "A man's got to know his limitations." Know your limitations and don't be afraid to invest in help when you need it.

Listening / Reading / Watching

Here's what has my attention right now:

• Alien: Covenant. As a major sci-fi nerd and superfan of most installments in the Alien series, I can't wait to see this tonight.
• Quiet: The Power of Introverts in a World That Can't Stop Talking, by Susan Cain. As an introvert, I think it's fitting that I listen to this with earbuds firmly planted in my ears. That way I can keep to myself and not risk having someone try to talk to me.
• Master of None, season two on Netflix. If you haven't watched season one, do it now. Comedian Aziz Ansari's series is excellent.

Despite My Best Efforts, I Ended Up Writing About New Year's Resolutions

A Topic No One Has Ever Written About

I hope you had a nice Holiday Season! For my first post of 2017, I decided to write about something new, something fascinating.

Then I decided to save that topic for another week.

On to the New Year's resolutions!

Mine

In previous years I've done a reasonably good job of sticking with my New Year's resolutions. I believe it's important to set some goals for yourself. Even better, share your resolutions with family or friends so there's someone that can hold you accountable. Okay, here are my resolutions for 2017:

1. Hold monthly financial check-ins with my wife. Okay, maybe this isn't the most exciting or romantic goal, but we've done this in previous years and it's been instrumental to our financial success as well as the health of our marriage.
2. Slowly increase my exercise regimen now that my lower back injury has healed. At this time, I have no desire to resume the punishing routine required to participate in triathlons. Ten years of that was enough. Now I'll settle for keeping off excess weight and remaining healthy.
3. Ditch my phone/tablet/laptop when the girls get home from school. Recently, my brother-in-law helped set up a charging station in our house. I'd like to drop my tech gear there for the few short hours I have with the girls before they have to go to bed. Out of sight, out of mind. Email and work can wait until after they're asleep.

Yours?

So what are your New Year's resolutions? If you're a client, I'd love it if you shared yours with me. Feel free to share even if you're not a client!

I hope you have a great year. Good luck sticking with your resolutions!

Listening / Reading / Watching

Here's what has my attention right now:

• The Smartest Places on Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation by Antoine van Agtmael and Fred Bakker. The authors take a look at parts of the US that have been written off. They conclude these regions may be actually leading the way forward for new products and technologies.
• Catching up on issues of Wired magazine that have been sitting on my nightstand.

Post-Election Thoughts

What Happens Next?

I know many of my friends and clients were surprised by the results of last night's election. Adding fuel to the fire, it didn't help that markets fell sharply as reactions to a Trump presidency spread across the world. The Dow was off over 800 points, more than a 5% decline, and futures trading on the S&P 500 temporarily halted.

The results of the election and its impact on financial markets will be discussed adnauseum in the coming days (well, probably weeks). The topic of incorrect polls is likely to come up, which is understandable because, in addition to the US election, polls for the Colombia-FARC peace deal and Brexit were wrong. Just remember that markets calmed down quickly after the Brexit vote rocked financial markets. In fact, it's now about 11:30AM EST and US markets have already stabilized - and are in positive territory.

I cannot predict what will happen over the next four years. No one can. In addition, it's questionable just how much any president can affect the economy. Markets will go up and down, but there's nothing you can do about it.

Final Thought

I coach my nine-year-old daughter's soccer team. The kids often complain the actions of the opposing team or calls made by the referee aren't fair. My response is always the same.

I ask them the following question: "Who can you control?"

They eventually respond with something along the lines of "No one" or, the answer I'm really looking for, "I can only control myself".

Don't worry about the financial markets because you can't control them. Instead, focus on the things you can control. I know that's easier said than done, especially if you're nearing retirement or already retired. What I do know is that my investment strategy hasn't changed since yesterday.

Lemonade Stands, Autonomous Cars, and the Future of America

The Future

As a planner, financial and otherwise, I spend a lot of time thinking about the future. I have to if I want to help my clients achieve their goals. More importantly, at least to me, I think about the future because I want to ensure my daughters are prepared for the world they are inheriting.

This painful, OMG-will-it-ever-end election has many Americans thinking about the future, too. No matter which candidate you support for President, it's safe to say the winner will have to grapple with some extremely difficult problems, such as technology's impact on work, unemployment and underemployment, and the high cost of education.

The following articles address some of these issues and are definitely worth your time.

"The American Dream is Killing Us"

This article was written by author and blogger Mark Manson. He is by no means an expert on any one subject, but I think he really nails the problems facing America today. It's a long article*, so expect to spend about 23 minutes reading it.

* A client once asked if I ever read anything that's short. I do!

"The Unintended Ways Self-Driving Cars Will Change Our World"

If you're a regular reader, you know that I'm a big fan of Elon Musk. Maybe one day I'll even be able to afford one of his cars. Until then, I'll settle for some shares of Tesla.

This article references Musk, but it isn't about him. Instead, this article focuses on how autonomous cars will change the world. Driverless cars will be here faster than people realize and people don't yet grasp the enormous impact autonomous cars will have on, among other things, jobs, transportation, and the auto industry. Expect to take about 9 minutes to read this article.

Corrections

I'd like to highlight the following problems from my October 31st Dispatch:

• The subject of the email was incorrect. I initially planned to write an article about how the zombie apocalypse provides a way for us to better understand the concept of diversification. I changed the topic and neglected to update the subject line in MailChimp. Apologies for the confusion.
• Not all 403(b) plans are terrible. I shared an article about 403(b) retirement plans and wrote a harsh critique of why I think they're terrible. A client reminded me that not all 403(b) plans are terrible. While I still dislike that insurance products are woven into 403(b) plans, she had a good point. The plan offered by TIAA is one of the better ones available to consumers. Thanks, Jean!

Listening / Reading / Watching

Here are the terrifying things that had my attention this week:

• Back Mechanic by Dr. Stuart McGill. I've developed a problem in my lower back, possibly after years of triathlon training. This book came highly recommended by a trainer that dealt with the same issue. I hope to learn more so I can resume my regular exercise regimen.
• The Three-Body Problem by Cixin Liu. I'm finally getting around to reading this sci-fi book, which was highly recommended by Facebook CEO Mark Zuckerberg on his reading project "A Year of Books". So far, it's great - especially if you want to learn more about China's Cultural Revolution.

Adventures in Home-Buying

Adventures in Homebuying

The opening credits for House of Cards features our street in the Bloomingdale neighborhood of Washington, D.C.

Sadly, Kevin Spacey AKA Frank Underwood is not running for president.

An Eye-Opening Experience

My wife and I have lived in the wonderful Bloomingdale neighborhood of Washington, D.C. for 12 years. While we love our house and the neighborhood, we recently embarked on a search for another house. Our two bedroom row house is cramped for two adults and two growing children.

It was exciting to start our search. We made a checklist of all the must-have features the next house should have. Then we added some nice-to-have features to our list. Finally, we agreed on a price range for the search. My wife was happy, the children were happy, and all was well.

Then our real estate agent started sending us listings and showing us houses. It quickly became clear the D.C. real estate market is insane. D.C. isn't the only city dealing with a tough spring market; a recent article in Bloomberg Business suggests a nationwide problem.

After losing two houses to other buyers and still searching, I've learned a few things that I'd like to share with you.

Tips For Your Home Search

We've seen quite a bit of shoddy construction during our search. I'm pretty sure we saw a load-bearing poster in one of the gems we saw.

1. Figure Out What You Want

Make a list of the must-have and nice-to-have features you want in a home. You might even consider prioritizing the features just in case you are forced to make some tough decisions before buying.

2. Location, Location, Location

You need to decide where you want to live. Remember, you can change the house but you can't change its location.

3. Tour Multiple Properties

I found this tip particularly helpful when starting our search. Initially, our agent took us on a quick tour of several properties of differing conditions in the neighborhoods we expressed interest in. The cross-section of properties helped narrow our search.

Shout out to Chris Chambers of A-K Real Estate. Thanks for being awesome!

4. Speak With a Lender

Submit a loan application to a lender before going to look at houses. You'll want to know how much house you can afford so you don't waste your time or your agent's.

5. Seek Advice From a Professional

Find a house you really like? Great! In a hot market, it's helpful to have a contractor do a walkthrough of the house. A pre-inspection may help you pinpoint problems with the house or confirm that you're making an offer on a good property.

In addition, I suggest checking whether or not the developer obtained the necessary permits to renovate a house. There have been horror stories about shady developers in the D.C. region. If you're buying in DC, you can check permits using this link to the D.C. Department of Consumer and Regulatory Affairs.

6. Set Your Price - And Stick To It!

You're probably going to be excited by the time you're ready to make an offer. It's easy to get carried away when you're bidding in a competitive market. Set your maximum price, make your best offer, and let it go.

7. Be Patient

Okay, even I have a difficult time with this step. Buying a home in a hot real estate market isn't always easy. You might not be successful the first time (or two!) you make an offer. Be patient and will eventually find success.

Switching Topics...

Recently, I was interviewed for the Bloomingdale Buzz section of Capital Community News. Here's a link to the article!