How to not shoot yourself in the foot

Stroll Down Memory Lane

How to not shoot yourself in the foot

September 2018

Do you remember where you were and doing the summer of 2008?

·        On vacation with no internet, phones or TV?

·        Sweating bullets, checking your 401(k) balance daily or worse yet, hourly?

·        Calling your financial advisor and demanding he / she sell everything?

·        Putting off your much awaited retirement?

·        Watching For Sale signs go up in your neighborhood and listening to people talk about foreclosure and getting laid off.  And yes, your house is now worth less than your loan balance?

·        Quietly buying stocks because of the sell-off in price?

 Facts you may have forgotten (or for sanity purposes, choose not to remember):

·        Bear Stearns was taken over by Chase in March 2008.

·        Fannie Mae & Freddy Mac were put into receivership September 6, 2008.

·        Indy Mac Bank failed June 11 –--4th largest bank failure in US.

·        Lehman Brothers went bankrupt September 15, 2008. 

·        Merrill Lynch, also a victim of subprime mortgage investing, was taken over by Bank of America also on Sept 15.

·        Washington Mutual Bank was put into receivership by FDIC on September 25.

·        AIG would likely need a bailout and ultimately received it late in 2008.

 The financial world seemed to nearing an end.  Apocalypse?  Armagedon?  Is this the next Great Depression?  Global economic collapse?

 Things worked out for many people.  Not so good for others.  Note the following changes in the S&P 500(1).

·        S&P 500 peaked at 1576 on October 11, 2007.

·        Sept 15, 2008 the S&P 500 closed at 1193 after the bankruptcy of Lehman.

·        March 9, 2009 the S&P500 closed 679 ---this was the bottom. 

·        By September 15, 2009, one year after the Lehman bankruptcy, the S&P500 closed at 1192.

·        August 31, 2018, the S&P500 closed at 2,901

Strategies to Avoid Making Bad Decisions

Start with a plan.

·        What are your priorities?  When will you be needing money to spend from your investments.  Do you have a plan?

·        Your plan, not current events, should drive investment decisions.

·        How much $$ do you need to accomplish your financial goals?  What rate-of-return is necessary?

·        What did you do in the last two emotional investment periods?

o   The “growth-Dot.com” bubble of the last ‘90s and early 2000?

o   The financial crisis of 2008?

o   How did your actions during those two periods work out for you?

Events are neither good nor bad.  “A rising stock market can be a bad thing.  A falling stock market can be a good thing.”  What?? Read the previous two sentences again.  Sounds crazy.  That must be wrong.  How can the rapidly growing stock market like the late 1990s be a bad thing?  How can the market crash of 2008 and First Quarter 2009 be a good thing? 

In my book, Rewriting Your Financial Narrative, in chapter 4, I propose that:

E + R = O

I am proposing that ALL events are neutral.  An event is neither good nor bad.  It is your reaction or response to any event that impacts your outcome either positively or negatively.  Allow me two examples.

If your reaction to the events of financial crisis/ mortgage / bank meltdown of 2008 and Q1 2009, was to sell everything and wait for things to look and feel better based upon what you are getting from media, your outcome was probably not very good.  You bought high (on enthusiasm and “good news”) only to sell low (on fear and bad news). And today, in all likelihood you may be worse off than had you done nothing.

However, what if you had been buying stocks even in small increments and not selling throughout 2008 and into 2009 as the markets were declining?  Your outcome could perhaps have been very different.

Same event.  Two different responses.  Two very different outcomes.

Example #2 is the exploding growth of “large-cap growth stocks” during the late- 1990s and into 2000.  This period is commonly referred to as the Dot.com bubble as many technology companies were coming to market and “all things techie” were considered to be the future and therefore good.  This is the “event.”

Reaction #1:  After listening to neighbors, co-workers and relatives brag about all the money they are making (25, 35, even 50%) on the stocks they are buying, you take the plunge.  You are convinced that diversification is dumb; only for losers; and is only holding you back.  You dump all your other investments and put your money into three or four “hot tech stocks” or the tech-focused mutual fund in your 401(k).  Then in three consecutive years (’00 through ’02), the tech sector is down 38, 25, and 37%.

Reaction #2:  You maintain your plan with a diversified portfolio and rebalance annually to sell some of the rapidly growing tech stocks as they continue to gain value and diversify to other market sectors and even bonds.  Then after the “tech-wreck, terrorist attack, and the market fallout from Worldcom and Enron, you continue to rebalance annually to align your portfolio with your financial goals.

Same event.  Two different reactions.  Two different outcomes.

Your financial advisor’s job is guide you through big-time scary /emotional events and keep you on the road to your financial priorities.  Call my office if you have questions, comments, fears, or aspirations not being met.

Risk is not knowing what you are doing.  ---  Warren Buffet

(1)  The S&P 500 is an index to reflect the value of stocks and the stock market.  You cannot invest directly in the index.  Past performance is neither an indication or prediction of future

What is Your Story?

Every single client who has ever walked into my office—without  exception—has always come equipped with what I call a financial narrative. These are the stories we tell ourselves to explain why we’re in the financial situation we’re in. These stories—some true, some pure fiction—are often recycled in our minds until they become our perceived reality.

 So…. what is your story?

·        I am rich.

·        Good with money.

·        I am a saver.

·        Smart investor.

·        I only buy what I need and can afford.

·        I am poor.

·        Bad with money.

·        Cannot save money.

·        Bad luck investor.

·        If I want something I buy it.

 Sometimes these financial narratives are very accurate. But, in most cases, the stories we tell ourselves aren’t rooted in any type of reality whatsoever. They’re fairy tales. Whether these narratives are too optimistic or too pessimistic doesn’t matter. The truth is, clients who hold onto a false sense of reality are doing themselves a disservice.

 Do you have an accurate grasp of your reality?  Is your narrative based upon that reality?  Or is your narrative based on how good you “wish” your finances are?  Or is your narrative based on how bad you “think” your finances are now?

 It’s like the movie La La Land. If you don’t know what’s real and what’s imaginary, you’re destined to meet  disappointments somewhere along the line.

This is why I see it as one of my principle responsibilities to:

a)       Assist people to form an accurate picture of their financial reality

b)     Determine if their narrative syncs with their reality.

 Is your narrative helping you or hurting you?  .… If the narrative is based upon feeling and thoughts and not reality:

o    You may be living a lifestyle you cannot maintain / afford….and…..???  Bad things may result.

o   You may be denying yourself and family some of the financial freedom you have earned.

If the narrative is based upon an accurate evaluation of your financial reality:

o   Allows you to weigh options and alternatives with consequences.

o   You can make decisions with more confidence.

o   Which may provide additional peace of mind.

In closing, I want to remind us all that our narrative changes.  Some events affecting our narrative and reality include: a job loss, retirement, death of spouse, inheritance, or maybe just that you are 65 now rather than 55 (like you were just yesterday). 

Other events such as which political party is in power, the weather and recent financial events (markets are up / down,  interest rate changes, real estate booms / busts) often affect our narrative but upon closer examination may not affect our reality as dramatically as we may think / feel.

Therefore, I encourage people to understand that a financial plan is extremely accurate and applicable…..that is, until they leave my parking lot.  Then life happens.  Financial planning is exactly like your health.  A prudent approach calls for consultation, evaluation, and testing done at regular and periodic intervals by a qualified professional.

 “One’s destination is never a place, but a new way of seeing things.”  

---  Henry Miller

Please call the office at 760.737.2246 with questions or comments.

Health Care Crisis 2018

Health Care Problem !!

Allow me to rant a bit.  I was reviewing a financial plan this past week with a single woman living in Minnesota.  I noticed that my software’s “default setting” cost of her Medicare Supplemental policy seemed a bit high.  After I got off the phone, I did some checking and discovered the cost varies dramatically from state to state.  Guess I sorta knew that …. but guess I never paid attention. 

 A typical, traditional “MediGap” or Medicare supplemental insurance policy in Minnesota is $4,209 per year.  A comparable policy in New York is $3,718; California is $2,223; $1,920 in Tennessee or South Dakota; and finally $1,686 in New Mexico.

 Guess we are all moving to New Mexico so we can afford health insurance.

 But the bigger problem is the overall cost of health care in America.  And more importantly, what will the affect be on our economy in the future. 

The National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States.  Total U.S. health care spending grew 4.3 percent in 2016, reaching $3.3 trillion or $10,348 per person (man, woman, senior citizen and child).  As a share of the nation's Gross Domestic Product, health spending accounted for 17.9 percent.  Under current law, national health spending is projected to grow at an average rate of 5.5 percent per year for 2017-26 and to reach $5.7 trillion by 2026.  Health spending is projected to grow 1.0 percentage point faster than Gross Domestic Product (GDP) per year over the 2017-26 period; as a result, the health share of GDP is expected to rise from 17.9 percent in 2016 to 19.7 percent by 2026.

https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html

People…..this is a big deal.  We HAVE A PROBLEM !!!!!!  At the current rate of cost increases, your health care costs will probably double in ten years and be two and a half times larger in twenty years….

 When a terrorist attacks our county or a hurricane devastates one of our cities, Americans unite to fight the common enemy or rally around our neighbors who lost property and loved ones.  The cost of health care is no different.  This is a national problem.  Not a Democrat or Republican problem. 

You may not care for the person or politics of Obama, Pelosi, Trump or Cruz…..but get over it…..Any and every attempt to control health care costs and cover more people is worthy of consideration and discussion (note…I said discussion).  Improve on the status quo.  If you have a better idea, let’s hear it.  Tell us how your idea is better and will save us money.   Don’t give us a quick fix and think we are done.  This is huge problem…difficult to solve.  It is just like eating that elephant….one bit at a time over a long time.

Your job…..my job…..everyone’s job…. Is to tell the people that are supposed to be representing you in your state capital and Washington that you expect them to do their job…..and you WILL HOLD THEM RESPONSIBLE.

How To Drive Your Children Crazy

30 Lessons On How to Make Your Family Crazy?

Were any of your children the “teenager from HELL”?  You know the one.  No idea where they were or what they were doing?  Hung out with all the wrong crowd.  Alcohol, drugs, tobacco.  Fights.  Disobedient.  Defiant.  In trouble at school.  Maybe even in trouble with the law.  And that was your daughter.  What about the boys?

Or maybe you fit that description.

In any case.  As we all age, we are going to have the opportunity to “pay-back” all the grief our children gave us.  We all will have the chance to inflict the anxiety in reverse.

How can you drive your family nuts you may ask?  Allow me to plant the seed to get your imagination working.

1.      Start out by refusing to see your doctor for regular exams. 

2.      Your hearing is fine.  People just mumble when they talk. 

3.      You don’t need new glasses.  They just need to go back to the larger print they used to have for the newspaper.  Yes, you could read the menu if they just had decent lighting in the restaurant.

4.      On that topic, no you do not want the digital newspaper.  You want yours on the driveway before 7 AM because you cannot have coffee or “do your business” before your paper arrives.

5.      Your driving skills are just fine.  Everyone else is just going too fast.

6.      You can balance the check book just fine thank you.  The check register certainly makes it easier to balance the check book.

7.      You don’t want direct deposit.  You like getting checks in the mail box so you know that you got the money.

8.      There is no reason to deposit the checks right away.  You like saving them up on the kitchen counter so you know you have money when you need to buy something.  Then you will take them to the bank.

9.      Of course you don’t want “auto-pay.”  You don’t want anybody to take money from your bank account if you don’t know how much or when.

10. You don’t like using a credit card and you refuse to have a debit card.  You like to write checks at the grocery store and pharmacy.  That way you can enter the amount, date, check number and who you paid in the check register right on the spot so you have a record of who you paid, when and how much.  Those people behind you in line can just be patient and wait for you to finish.

11. You became angry when the bank closed its local branch and offered you an ATM for your “banking convenience.”  You don’t like doing your banking with a machine.  You want to talk to a person.

12. You see no need to pay someone for your simple tax return.  You just go to the Post Office to get the forms and do it yourself.

13. You see no reason to update your will.  Nothing has changed since the last child was born 55 years ago.  Besides the #@&% attorney will probably charge $1,000 to change something that doesn’t need changing anyway.

14. You don’t like having too much money in any one bank, so you “diversify” by having accounts at several.  That way you can “negotiate” higher CD rates when something matures.

15. You like having the stock certificates from the ATT breakup that created all the “Baby Bells.”  Plus, some of the certificates like the Australian Gold Mine are sorta pretty and you like to look at them.

16. You keep some of the stock certificates in the filing cabinet at home for the smaller share balances but the “big ones” are in the safe deposit box at the bank.  Which bank?  You may have to think about it, because you used to have a couple of boxes at different banks….and some branches closed…. And where is that key for the box? 

17. No, you don’t want one of the kids on the signature card to have access to the box now.  Yes, someday you will do that but not now.

18. It isn’t a big deal that some of these stock certificates are in your name only, while others have both your wife’s name and yours.  Then there are a few shares from “the gas company” that she inherited when her dad died thirty years ago that only have her name.  We really should sort this out but of course you are too busy now.  You will get to it later.

19. Yes, I can appreciate your concerns about the potential failure of the banking system and the need to keep cash here in the house.  Of course the cash is safe in the safe / fireproof box / hidden in your “safe place” behind your shoes in the closet / the fake Burma-shave can with the screw off top in your sock drawer.  Everyone keeps a Burma-shave can in the sock drawer.  Sure, it makes sense to hide money in different places so if the criminals break in and you cannot get to the gun, they won’t find “all the cash.”

Let’s take it up a notch: 

20. You and your spouse are doing just fine.  No way in HELL do you need or want some “stranger” coming into your house to fix meals, help with laundry, or clean.

21. You still get good food –those TV dinners are tasty and easy to clean up.  In fact, if it is too much food or you aren’t real hungry you just put the left-overs in the fridge for later.

22. No, you will NOT let anyone throw out your National Geographic from the last twenty years because there a lot of good articles you may want to re-read someday.  Yes, it is the same with your New York Times.

23. You like those “throw-rugs” because they cover up the cords for the lamp so you don’t trip on the cord.  And yes, I know you have never tripped on one of the rugs yet.

24. No, that is not junk mail on the kitchen counter.  It is merely the stuff you haven’t had a chance to go through and open.  There may be some dividend checks so don’t throw anything out.  You will get to it.

25. No, I am sure you paid to renew the tags for the car.  Well maybe the state forgot to send you the new sticker and that is why the plate is four months past due.  Yes, you must have used the “other checkbook” and that is why the check for the tags in not entered in the register of your primary checkbook. Yes, someone probably “moved the other checkbook” which is why you cannot find it now and you will look for it later.

26. Yes, I will get my nose out of your refrigerator.  Yes, I am sure the food in the back with the green fuzz is just fine and you will throw it out if it is bad.

27. Yes, you probably paid the homeowner’s insurance and the electric bill.  These “past due” notices were probably sent out before the payment was actually due to scare people into paying their bills early.  Hmmm, they were probably paid from that “other bank account.”

28. And no, of course, you don’t need to see your doctor.  Yes, I understand, if you were sick you would go.  Yes, I know, the only reason the doctor wants to see you is so she can make more money.  Yes, I know they are not real doctors because they all look like high school kids.

29. And yes… I understand the caregiver is an unnecessary expense.  Sure, I can stop by every day after work to make sure supper is ready on time.  Sure, I can come over every weekend to wash clothes, grocery shop and run other errands instead of going to my kid’s soccer games or maybe go for a hike or bike ride with my spouse.  Of course, my employer doesn’t mind if I take the afternoon off to take you to the doctor, dentist, or to physical therapy.

30. Of course your driving is just fine.  No, that dent in the fender is not new.  It has been there for years.

Are you beginning to see how much fun this all could be?   I could go on to the next level.  In fact, I will go to the next level of insanity in the next posting.