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All Posts By Michael Lecours, CFP

A New Strategy. A New Approach.

By Posted on In Investment Strategies, Uncategorized

This is the final part of a series (Part 1, Part 2, Part 3)

If your portfolio is still sitting on the sidelines in cash as you wait for the right time to enter the market, you may want to consider a new strategy. There is always a headline out there to suggest that the market is about to go down. Here are a few strategies we suggest you consider:

1) Turn off the TV. 95% of what you hear and read about the economy is noise. A recent article on the front page of Yahoo.com reports that actress “Mila Kunis Rotates From Cash to Stocks”. We’re not putting the link there, because that’s the noise we’re talking about.

2) Put a multi-year plan together. Step 1 – Decide what the funds will be used for and when you expect to need them. Step 2 – Determine the amount of risk you need to take in order to reach your goals. If not, there are many strategies that can be used to help you. Maybe you need to save more, or maybe you need a new investment portfolio and investment strategies.

3) Stick to it. It’s important to remain committed to the plan, with periodic tweaks and changes. All to often, we see plans used for only a short period of time before old habits come back.

4) Get a second opinion. It’s important to remember to tap the expertise of a financial advisor when developing your plan. When prospective clients ask us for help, we dig deep to make sure all their investments and assets (including their 401(k), IRA, ROTH IRA, bank accounts) are working well together. We look at a few key areas for each portfolio: proper diversification, fees & expenses, performance, and volatility within the portfolio. Each of these is important and is driven by a client’s personal situation and risk tolerance. Most importantly, we look to see if this portfolio could achieve the client’s financial goal.

Growing complexity of retirement

By Posted on In Retirement, Uncategorized

This piece was written about a year ago, but the two statistics from Sloan should be read again. During the past year, we have plenty of anecdotal evidence to support their findings:

There are a lot of options and factors to consider when preparing for retirement. It’s no longer just about the size of your nest egg. It’s about adequate insurance coverage, strategies to maximize your social security benefits (interesting story here), strategies to minimize taxes, and weighing your needs for Long Term Care insurance. And that’s just to name a few.

Of course, another option to consider is when to retire. Given the state of the economy and the fact that people are healthier and living longer than ever before, more and more people are pushing retirement back. Here are a few interesting statistics coming from the Sloan Center on Aging & Work at Boston College:

“Fewer Older Workers Expect to Retire at 62 or 65. According to a 2012 analysis of data from the Health and Retirement Survey, ‘a declining percentage of Americans are expecting to retire at 62 and 65. In 2006, 7.4 percent of people [over the age of 50] said they plan to stop working at 62, but by 2010 it had dropped to 4.9 percent. In 2006, 16.1 percent people expected to retire at 65, but in 2010, 14.6 percent planned to do so. Conversely, expected retirement at 66 has increased from 2.9 percent in 2006 to 4 percent in 2010.'”

And coming from the same outfit:

“One-fifth of U.S. Workers Say They Don’t Plan to Stop Working According to the 2011 Sun-Life Unretirement Index, when asked at what age they plan to stop working, 20% of American workers stated ‘Never. I think I’ll always work in some capacity.'”

Bad News Begets Bad Behavior

By Posted on In Finding Confidence, Uncategorized

This is the third part of a series (Part 1, Part 2, Part 3, Part 4)

For many investors, the bad news was cause for them to pull their money out, sit on the sidelines and wait for conditions to improve. They waited for the situation to turn around and to feel confident again in the markets.

We all remember the infamous day of September 29, 2008 when the markets dropped so much. But the very next day, the markets had one of the best days ever.

And for the past three years, the economy has been growing and growing. Many investors who stayed invested are back to where they were before the 2008 recession.

Unfortunately, many are still sitting on the sidelines watching the news and seeing one headline

The Search for Bad News: Instinct or Addiction

By Posted on In Finding Confidence, Uncategorized

This is the second part of a series (Part 1, Part 2, Part 3, Part 4)

Numerous studies suggest people are more interested in bad news than good news. It’s easier to scare someone into reading or watching a news story than any other way. But some psychologists think they can explain why we have a desire to learn more about the bad, rather than the good.

Scientists suggest this search for bad news can be traced back to our hunter-gather roots since anything that was perceived as threatening had to be dealt with immediately for survival.

But in today’s environment, when we hear about bad news we hop on Twitter, the internet, or the TV. Take September 29, 2008 when the markets faced one of the worst days in decades. CNBC had the highest ratings ever on that same day. Or take a few months earlier – January 22, 2008, the day the Fed cut interest rates by the highest amount in its history. On that day, the search term “Recession” was searched at a rate of more than five times the day before!

There is something, possibly instinctual, that pulls us to learn more about the negative news.

History Doesn’t Repeat Itself. Headlines Do!

By Posted on In Finding Confidence, Uncategorized

This is the first part of a series (Part 1, Part 2, Part 3, Part 4)

We’ve seen these headlines in the news over the course of the last few months:

“The U.S. Is Going Broke”

“Social Security’s Coming Crisis”

“There’s No Way Out of this Unemployment Crunch”

“Exploding Federal Debt – Why so Dangerous”

From an economist’s standpoint, these problems aren’t new. We’ve seen these exact problems before in our lifetime. In fact, these headlines aren’t new either – they were all written between 1972 and 1984!

Sure the details may be different, but the overall issues have always been there, percolating on the back burner. Once the media picks up on the problem, they package it up in a way to grab your attention so you buy the publication, see the banner ad, or watch the advertisement.

Overcoming Volatility in Confidence

By Posted on In Finding Confidence, Investment Strategies, Uncategorized

Some refer to the past decade as “the lost decade” due to market volatility that seemed to send many investors back to where they started.

It also marked tremendous volatility in confidence, with investors finding it difficult to believe in their investments and in the market itself. As a result, investors faced a new risk – allowing fear to stand in the way of capturing future market gains.

These concerns can vary in degree and change depending on the state of the market. The following stages reflect a common progression of mindset during most economic cycles, while suggesting a way to rebound from volatilities in returns and in confidence.

1. Herding: Confidence builds. Doing what everyone else is doing creates the feeling of safety in numbers.

2. Anchoring: Confidence is high. As investors fixate on a high-water portfolio value, confidence can hinder the ability to rationalize a normal cyclical decline.

3. Information Overload: Confidence is questioned. Investors cannot stop listening to news reports and opinions which, more often than not, feed into doubts and pessimism.

4. Straight Line Projections: Confidence wanes. Investors sometimes forget that most broad markets are cyclical and never go in a single direction forever.

5. Despair: Confidence is shattered. Conclusion that the financial markets, government oversight and the global economy are broken beyond repair.

6. Change of Strategy: Confidence returns. Investors begin to again feel positive about market participation when they are confident their strategy is built from knowledge gained through past downturns and reasonably promises to avoid similar outcomes.

Stages of volatility

A Golden Age

By Posted on In Economy, Finding Confidence, Investment Behavior, Uncategorized

It’s easy to forget and lose perspective about what is happening in this world. From uncertainty in our economy and in Europe, the looming fiscal cliff, and most recently the tragedy in Newtown, we may be feeling lost and unsure about the future. Just turn on any news program. The pundits, news anchors, talking heads, supposed experts, and politicians are talking about the problems we face.

But let’s not forget some amazing accomplishments that have occurred in recent years:

· People throughout the world are now living longer than ever before, here.

· Extreme poverty has been dropping year over year, thanks in a large part to the improving economies in Asia, here. . (For a fascinating comparison of population size and prosperity over the past 200 years, visit here. )

· The cell phone is playing a huge part in reducing poverty. “A 2010 U.N. study, for example, found that cell phones are one of the most effective advancements in history to lift people out of poverty.” Time Magazine.

· Global food production continues to increase, here.

· GDP per capita has been rising throughout the world, here.

· Scientific and technical journal articles have been increasing each year, leading to more and more health and science breakthroughs, here.

· On a global scale, people are building and inventing more new technologies than ever before. Patent applications have been rising each year, here.

· Deaths related to battles, conflict and wars are showing a downtrend, meaning there are fewer death than ever before due to conflicts, here.

· For more trends that point to an improved and improving world visit here.

“Never has there been less hunger, less disease or more prosperity. The West remains in the economic doldrums, but most developing countries are charging ahead, and people are being lifted out of poverty at the fastest rate ever recorded. The death toll inflicted by war and natural disasters is also mercifully low. We are living in a golden age.” (link to full articlelink to full article)

The above article is a fresh perspective and provides a positive view of a world that many are unsure about. The fiscal cliff just doesn’t seem as important now as it did a few moments ago.

We hope that you have a wonderful holiday and when you have a conversation with family or friends that delve into what this world is becoming, think back to this newsletter and all the good things that are happening.

Maybe we are living in a golden age and we can’t see it.

 

Are You at Risk of the Tail?

By Posted on In Economy, Uncategorized

If you’re an investor worried about another major decline in the markets like the one experienced in 2008-2009, then you’re worried about something called “tail risk”. Just like the probability illustrated on a bell curve, the majority of gains and losses are usually within a certain range. But there is a chance that your portfolio could decline so much that it hits the far tail of the curve. PIMCO has an excellent illustration of tail risk.

Bell curve showing tail risk

You’re not alone in thinking that another major decline is on the way. A recent survey reported by Financial Times shows that many of the worlds biggest investors foresee another major market drop (Read more: Investors fear imminent tail-risk event).

As discussed in the article, some of the strategies that could limit your losses if such an event were to happen again include: managed volatility equity strategies, direct hedging and other alternative asset allocations (such as property or commodities), or going all to cash since inflation would likely be low. And for what it’s worth all of these strategies are included in The Active Asset Allocation Portfolio.

Then again, have you considered the possibility that we are entering a significant bull market and that we at the other end of the tail?

 

Five strategies to fix the biggest problem with your portfolio

By Posted on In Retirement, Rule of Thumb, Saving, Uncategorized

The single greatest factor to affect your financial goals for retirement has nothing to do with investment options, asset allocations, bonds or stocks. Rather, it’s the amount you save for retirement year over year. And yet, many struggle to save for retirement despite the facts. Business Insider recently published an excellent article that detailed some of the reasons why individuals are not saving enough for retirement.

So now you know why you aren’t saving enough, here are a few top strategies you can use to improve how you save for retirement:

1) Aim to save about 10% of your gross pay for retirement. It’s a rule of thumb – if you’re starting to save later in life, that rate will have to be higher.

2) Double check that you are taking advantage of matching programs with your employer’s 401k.

3) Save in addition to your 401k contributions. Just because you’ve maxed out your matching contribution, doesn’t mean that you should stop there. Consider opening a Roth IRA to save more.

4) Track expenses. To reiterate one of the tips in the article, by reducing how much you spend on non-essential expenses you can end up with a nice contribution to your retirement accounts. You can track expenses yourself or use a site like mint.com

5) Set up systematic contributions. It’s very easy to link your checking account to your retirement account and have contributions made to your investment account automatically. You can even explore the option of a payroll deduction.

Regardless of the strategy you adopt, remember that it will require self control. It’s very easy to shift dollars you earmarked for retirement to pay for that unexpected expense. Develop a plan, stick to it and review it periodically.

 

The Team

H.L. Rives III, CPA
Cliff Jarvis
Michael Lecours, CFP®
Ronald G. Lecours, CFP®

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