The Year in Review- The Year in Preview

Out with the old and in with the new!

2012 had some ups and downs, but ended up in the positive territory for the un-managed stock market indexes.

My outlook for 2013 is not quite as optimistic as it’s been the past few years for a number of reasons.

In my video, I recap 2012, provide some thoughts on 2013, and discuss my philosophy how different strategies should be considered going forward.

TRANSCRIPT:

Good morning! Mike Brady with Generosity Wealth Management, a full-service, comprehensive wealth management firm headquartered right here in Boulder, Colorado, and I am the President.

Today, I would like to talk with you about 2012, a little bit of a recap. We’ll also talk about the outlook for 2013 and what my analysis and what my opinion might be on 2013. Before I go any further, there will be a discussion here at my office, 45 minutes to 60 minutes, a seminar on the Outlook for 2013 on January 30, 2013, at 6 p.m. If you are interested in coming to that, please RSVP with Cassidy@generositywealth.com or you can call my offices: 303-747-6455. I will be sending out an invitation as well within a week or so.

Let’s look at 2012. I’m going to flip up there on the screen and you’re going to see the unmanaged stock market index for 2012. The first quarter was good. The second quarter was bad. Third was good and fourth pretty much held its own, although November wasn’t looking so good.

For the first quarter what you’ll see is if you missed January, you missed some of that first quarter’s gain and the second quarter was a tough one. That was very uncomfortable at that time. And when things like that happen (I’m going to throw up on the chart there again, there we go.) What you’ll see is it is common throughout the year for there to be declines. This does not mean that the year will end a decline. When those things happen, people have a tendency to get concerned, maybe even freak out. Last year was at 10%. The year before, it was 19% and then it was a16% decline. Three years ago, 28%. It is common for there to be a decline throughout the year.

At the end of the year, we had all of the election discussion. In case you haven’t been paying attention, President Obama did win re-election and then we went right into the fiscal cliff; right at the end of the year.

This video is really not so much about all the intricacies of the fiscal cliff and what was decided there. But in general, most people from a marginal tax bracket were not hit—39.6% for the highest tax bracket, if you’re at $400,000 or $450,000 income or greater, whether you’re single or married.

The capital gains and the dividends stayed the same for most people, except it’s now 20% for those at the highest rate. That does not mean that you are completely avoided any additional taxes. Before I go into that, there’s also a $5,250,000 exemption on estate tax and that rate did go up from 35% to 40%. However, there is a 3.8% tax for ObamaCare and the payroll tax that was 2% about a year ago, kind of a tax break, that was allowed to lapse. The full 6.2% of the employee portion of it is now going to be taken out of your paycheck going forward. You’re still going to see some kind of a tax bite at all the various ranges and income levels.

Last year there was also a little bit of a calming over in Europe but it is still, particularly in the credit market, but it is still disaster over there from a mid- to a long-term.

Let’s start talking about where we are right now in 2013. The last two or three years, I’ve been optimistic. You look back at the videos, you look back to my newsletters and you’re going to see that. I’ve always said that a diversified portfolio, while it does not guarantee a positive return, does not guarantee, particularly, in a generally trending down market that you know the perfect scenario on the outside, I do believe that it is a key ingredient to going from point A to point B in your goal planning.

Goal planning is really going from point A to point B, identifying those financial events that might knock you off and might derail you from getting to what your goal is, whatever that might be, and proactively addressing it and seeing if there is anything you can do to mitigate it.

There are a couple of different strategies from an investment management point of view as I like to think of it. There is sailing, which is like sailing your boat and then there’s rowing, like “row, row, row your boat.” Sailing and rowing.

Sailing is a little bit more passive than rowing and just think about the wind blowing it. If the wind is going in your direction, things are good and it is very forgiving of any errors you might have. The wind stops, you stop; the wind goes the other way, you might be going backwards.

If we’re in a generally upward market, this might be a good way to have your portfolio. The last two or three years, I felt comfortable, depending on the client of course. I am always making sure that it’s an individualized portfolio for them to meet their investment objectives, having less of an active trading strategy in there. Yes, we would move and allocate appropriately as the year unfolded, but it’s been very forgiving of any mistakes.

I believe in 2013 and looking into 2014, we’re going to be more of a trading range and that we might want to add in and complement some of our sailing strategies, some of our diversified asset allocation strategies with some managers who have a good track record of being a little bit more active.

Why do I think that? I think that 2013 and 2014, we’re already seeing that taxes are going up. I already mentioned that earlier. You’ve got the payroll tax, the ObamaCare tax and that is going to lead to some less disposable income.

I’m going to put up here on the chart, we’re going to see what some inflection points are and how things have looked in the last 10 years or so. From a technical point of view, we’ve had a great run in the last three or four years. The question is, are things going to continue to go straight up?

We’ve practically, in an unmanaged stock market index, doubled in the last three or four years. In the next three or four years, are we going to double? Is it going to be quite as easy? I’m a little hesitant to say something like that.

Earnings growth for the fourth quarter has not released, but it’s expected to be down. Manufacturing inventories are up, which is a bad thing. While forward PE ratios* I take with a grain of salt, the price to earnings growth ratio is higher, which is a negative thing which basically means the pricing market in relation to the expected growth.

PE ratios are higher now than they were a year, and even two years, ago. While the debt to GDP ratio for the federal government is about 103% which in my opinion, is in a danger zone. Not to make this into a political video, whether it’s a revenue or a spending problem depending on what your philosophical views are–Democrat, Republican, whatever it might be—everyone is agreeing that having too much debt is a problem. I think that we’re getting into a danger zone, particularly that debt in relation to the Gross Domestic Product (the GDP). That has me concerned.

Profits are good for corporations. They’ve been very efficient and have really cut a lot of their expenses. They are really trying to get “bare bones” in the last two or three years, which I think is great. The amount of cash that they’re holding on their balance sheets is good and high. But the question is with some bumps in the economy going forward, how much of a buffer do they have in order to ride it out? My concern is that they might not have quite as much of a buffer as we would like and what they’ve had in the past to cut expenses than they did in the last two or three years.

One of the big pieces of news in the last month that was really overshadowed by the fiscal cliff discussion was the Fed saying that they would like to phase out some of the quantitative easing in 18 to 24 months. They even pegged that 7.5% unemployment is something that would cause them to change their strategy. Whether or not what they say in their notes and what they’re actually going to do, that could be two different things.

Even Bill Gross, who is the manager of the largest bond fund in the world, he says that you have to pay the piper at some point and that it may lead to inflation. I believe that’s the case as well. I don’t know if it’s going to be inflation in 2013, but I do know that at some point, there will be increased inflation and that’s going to be a damper on some of the stock market. When you have slower growth and you’ve got inflation and when you have prices that have really seen a high rise in the last three to four years- that causes me to question whether or not that’s going to continue going forward.

Getting back to my philosophy, I do believe that there are different types of strategies—both sailing a little bit more passive and a little bit more active ones, more of rowing strategy–and having both of them may make sense in a portfolio for a client.

I’ll be talking with my clients in the next month or so to see what’s appropriate for them. I also think that having income strategies may make sense going forward and so I’ll be talking with my clients about that as well. If you’re going to take some risks, at least get some income as well. That’s one strategy and it may make sense with whatever the particular client might need going forward.

Those are my thoughts. I am going to expand upon them January 30, 2013, at 6 p.m. when I have a seminar here at my office. You’re always welcome to give me a call or an e-mail. Mike Brady, 303-747-6455.

I’m hoping that I’ve got all my notes here. I’m going to quickly look through here. It does look like it and the nice thing is I do videos throughout the entire year. If I’ve forgotten something here, I’ll just catch up with it on the next video.

You have a wonderful week and we’ll talk to you later.

Bye, bye now.

* “PE Ratio” is price to earnings ratio of a stock.

 

 

Active Management – Market Timing?

Active Management – Market Timing?

I’m asked periodically what I think of “market timing” or “active management” versus a straight buy and hold philosophy.

My first response is usually to ask for a definition of those terms. While it may be obvious to the person asking the question, if you ask 3 people you’ll get 3 different answers.

In this week’s video, I propose some definitions, but also share that while I think active management is preferable over your traditional buy & hold, market timing is great in theory but hard to execute in the real world.

Click to watch my video.

TRANSCRIPT:

Good morning! Mike Brady with Generosity Wealth Management and today I want to talk about active management; and what’s the role of that, what’s the place in someone’s portfolio; and frankly can “timing” be done, and done successfully?

Let me just tell you that in a previous life, a different company that I was involved in the late 90’s and early 2000’s, we were known as the market timing firm. And we were extremely successful at that. And so, I know first-hand that market timing, with the right players and in the right environment, can be very successful. However, most people cannot market time on their own. And market timing, traditionally is meant to be when to go in and out of the market, whether it’s short term; meaning a day or two or a week or even longer term; month, quarter or year; going between stocks and bonds and cash, etc. whether that’s with mutual funds, etc. That’s kind of a traditional discussion of market timing. You know, I think that those that can successfully market time are very small. But I do believe it can be done it’s just very, very difficult. And it is extremely difficult for an individual investor to do it on their own, on their own portfolio. I use an example, whenever I need some legal work done, if I try to do it myself, I’m not going to be successful. Does that mean that legal work  is not successful? No. I have to go to a lawyer, someone who is trained and is unemotional about the particular problem or issue that I might have. But, as Mark Twain said, “A lawyer who represents himself has a fool for a client.” Well, what he’s really saying is a lawyer should not represent himself. So it’s very difficult when you’re emotional about an issue to handle it on your own. That’s why I think a professional adviser makes sense even if that person is doing some market timing.

I do allocations within sectors. And I’m usually almost always invested but I’m trying to weight, kind of tilt, one sector over another; whether it’s large cap, small cap, or mid-cap. What I don’t do is go 100% stock one day and 100% cash the next day, or even week by week. I think that that is a skill that is extremely hard to do and a lot of times it just isn’t very successful. I’m not sure that the environment today is the same environment that it was ten and twenty years ago.

Unfortunately, the statistics out there show that investors who try to time the market on their own are 20% less successful than if they had just done a “buy-and-hold.” (Source: Barry Mendelson, CIMA, CMC EResearch, “Dangers of Market Timing,” 4/29/2008.) And once investors become active, this study that I just read a week or two ago, says that 40% admit that they’re probably too active and that they’ve hurt themselves. (Source: Helen Modly, CFP, CWPA, Focus Wealth Management, Ltd., “How the Wealthy Avoid Behavioral Bias: 7 Strategies,” 2/13/2012.) So, I do, … I’m kind of giving a “waffle-y” answer here; I do believe it’s possible, it is extremely difficult. I believe that a better solution is probably to be well diversified and to tilt particular sectors one way or the other and be very well diversified. I do work with some good managers that I’m very pleased with their particular approach and I’d be happy to talk with you about them and the way that they manage money, not in a market timing situation but in a good active management situation where it’s deciding what are the “tilts” and the “weights” of that particular diversification.

Hopefully this video made sense and clarified things a little bit; either way, give me a call if you’d like to talk about it. I just absolutely love hearing from you and hearing from your friends. So pass it on to someone if you think that they could have some value from this video. 303-747-6455, my name is Mike Brady, here in Boulder, Colorado. You have a wonderful, wonderful week. Thanks! Bye, bye.

2011 Recap and 2012 Outlook – Year End Video

Goodbye 2011 and hello 2012! What happened and what’s my outlook for 2012? Optimistic or pessimistic?

Watch my video to find out.

 

TRANSCRIPT:

Hi there, Mike Brady with Generosity Wealth Management, and today I want to talk to you about a little bit of a review on 2011, but spend most of my time talking about the current situation right now. And you know, maybe do a little bit of a, …, thinking about 2012 and what the future may hold.

2011 was a real volatile year. I mean frankly, when we look back at year upon year we can always say that it’s very volatile. I’m going to show you a graph in a minute or two that actually shows, we kind of forget about it, but many years have large declines intra-year. So 2011, (I’m going to throw this box up there); this is kind of a style box from value, blend, growth, and large, and mid, and small cap.* And by the way, I’ve got lots of disclosures at the end of this video so I highly encourage you to read those disclosures about the unmanaged stock indexes. So what you’ll see is, in general, the U.S. market was up a couple of percent to down five or six percent, but it was a wild ride the way we got there.

The first four, four and a half months of the year were up starting in May and June, we saw some weakness and then August and September were really quite brutal. Just huge, you know, hundred point swings in the DOW every other day and it was really quite painful and there was a huge focus on the downgrade of the U.S. government by S & P and a real focus on the U.S. federal debt. And, you know, 2011, one of the surprises was how well bonds did. I know I’m very surprised. And Bill Gross, who runs one of the largest funds out there, particularly bond focused funds, he admitted half way through the year, well maybe three quarters of the year, that he guessed it wrong. So, I think that how well the bonds did in 2011 is going to be the big surprise. But that’s why we remain diversified. Because my experience has shown, in twenty-one years, that the thing that you love the most sometimes you’re just darn wrong about! And so the thing that you hate the most, sometimes you’re wrong about that as well. So it’s really looking at the percentages, maybe weighting one over the other and changing that allocation throughout the year.

So you’re probably wondering about 2012. Right here in my hands I’ve got “15 Experts Predict 2012,” a little article. And we’re talking big names, Goldman Sachs, and UBS, and you know, kind of every big name that you can think of out there. And frankly, one article says that China is the best thing in the world, then the next one says China’s going to be a problem. One says that the U.S. is going to have great growth and the next one says it’s going to have poor growth. One saying bonds are good, one bad, and really the answer is always unclear, this year is no different.

I do believe we’re going to continue to have volatility, and one thing that I’m going to do is meet with clients and talk about whether or not some strategies need to be implemented to take advantage of that. But I am optimistic about 2012. I’m going to throw up a chart here; we’re going to see that the percentage of current assets that are in cash and equivalents has increased. And from a corporation point of view, that makes a lot of sense. I mean that when there’s uncertainty, you’re not sure how many widgets you’re going to be able to sell or how many services you’ll be able to provide, you want the best balance sheet that you can have. And I think the best recipients, when that cash gets converted back into research and development, gets back into the economy, I think that mid and small cap companies are going to be the ones that are kind of the first beneficiaries of that.

2012, I feel will be event driven, just like 2011 will. [sic.] We’re going to hear lots of stuff from Europe, and we’re going to hear a lot about the debt, and of course this is an election year so we’re going to hear all about, all about the election year politics. But I think we’re also going to hear about China. That’s going to come in here because it’s had a huge growth. It’s been one of the largest, kind of emerging into the developing markets, but it’s faltering. And this could be the year where it kind of teeter-totters to the bad side. So that’s something that I’m going to really watch out for.

I’m going to throw up here on the chart, that as it relates to volatility, here’s a chart that, we kind of forget about it but most years have some kind of volatility. The bottom number is entry year, kind of decline, and that does not mean that the year ended. The black number is actually what the year ended. So although there might have been a double digit decline throughout the year and everyone kind of freaks out, you know, it’s not over till it’s over. I’m here in Boulder and we got our Denver Broncos and between the fourth quarter and overtime, you know, the game’s not over till the whistle blows. And so throughout the year if we have some huge declines we have to assess at that time, “hey, wait a second, is this going to continue, or is this just one of those throughout the year declines that we still feel firm in our analysis that the market may be under-valued?”

Speaking of the market being under-valued, I don’t hold much weight with forward price to earnings ratios, but I do like, not the forward, but the actual price to earnings ratio is low right now. Particularly in comparison to like the twenty year average and what it’s historically been. So I’m kind of in the Warren Buffett camp that believes that this is a market that is under-valued; that the economy is actually getting better, it might not feel that [sic.], particularly if you’re unemployed. I mean we have an unemployment problem, and we have a housing problem. But you know, I’m kind of in that camp.

You know I could sit here and go on and on and on. But I think that I’ve gotten my feelings out to you that in general, I’m optimistic about 2012. I think that small and mid-cap are probably kind of the styles that deserve closer attention. But you’ve got to, of course, do what’s consistent with what your risk levels are, and your particular goals. And work with your financial advisor and hopefully that financial advisor is me, but if not, of course, everything I say here today is kind of general, so you can get a general feel for how I’m thinking.

That’s it for 2012.

Mike Brady, Generosity Wealth Management; I do have these videos on a weekly, sometimes every other week, depending on how busy I kind of get and if I’m able to get it out in time.

I am a full service wealth management firm, here in Boulder, although I have a number of clients in many different states. I named it Generosity Wealth Management because I truly believe that people are trying to make the world a better place and that includes making things better for themselves so that they are not a burden upon others in their own retirement. That they make things better for their family – so that they can pass money on to their family or just provide for them; whether it’s a college education; whether or not it’s just to make their life a little bit easier. But also to make their community a better place- both local and global community. And so there’s some “generosity” that each of us have inside us. And that’s many of the thoughts that went into my company name of Generosity Wealth Management.

303.747.6455

www.generositywealth.com

And please, stay tuned, I will have another video and another newsletter before you know it. You have a wonderful, wonderful day- bye bye.

* Small Cap- refers to stocks with a relatively small market capitalization. The definition of small cap can vary among brokers, but generally it is a company with a market capitalization of between $300 million and $2 billion.

Mid Cap- refers to a company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company’s shares outstanding by its stock price. Mid cap is an abbreviation for the term “middle capitalization”.

Large Cap- A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term “large market capitalization”. Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its stock price per share.

Keep in mind that the dollar amounts used for the classifications “large cap”, mid cap”, or “small cap” are only approximations that change over time. Among market participants, their exact definitions can vary.

Definitions courtesy of www.investopedia.com and reflect a general rather than specific understanding of these industry terms, unless otherwise stated.

Volatility, Healthcare in Retirement

Volatility, Healthcare in Retirement

It’s my belief the volatility we’ve seen in the past few weeks, months, and year will continue going forward. I also believe that more active management may make sense to take advantage of this market condition.

I talk about this in my video.

I also discuss the rising healthcare costs in your future and that I have software that will estimate what lump sum you may need upon retirement to fund your healthcare under certain assumptions.

Fun stuff! Click on video to hear more!

TRANSCRIPT:

Hi there, Mike Brady with Generosity Wealth Management, here in Boulder, Colorado. And I am really pleased to be talking with you today and there are a couple of things I want to talk about today.

And the first one is volatility. On Wednesday, we had a DOW that was over 400 points up, and this is following the Thanksgiving week where the market was sharply down. (Low volume but still sharply down.) And it’s my belief that this type of volatility, and not just in the last couple of weeks, we’ve seen a lot of volatility in the last year or so, I believe it is going to continue going forward. And if that is true, it’s also my belief that some active management should be considered for client’s portfolio. That’s something that I’m going to be talking with my clients about in the coming months. That’s also something I’m going to be talking about in these videos in the coming months, that it may have a place in a volatile environment- how can we best position our portfolio to take advantage of that particular market condition? So, if you’re not one of my clients, I recommend you give me a call so that we can talk about it, kind of one on one, and your personal situation.

And the second thing I’m thinking about this week is well, healthcare costs; and specifically as it relates to retirement.

I heard a statistic yesterday that is very interesting. The Fortune 100, 91 out of the Fortune 100, in 1985, had traditional pension plans. Today, the Fortune 100, only 19 of them have traditional pension plans. If you’re a GE employee, starting today, you know, day one of your employment, you are not offered their traditional pension plan. And that is, GE is one of the largest companies, with the largest pension plans. So, I think this is a trend that is going to continue going forward. And what this tells us is that you’ve got to take control of your saving and investing for your own retirement. Don’t assume that someone else, either some big corporation or even Social Security is going to handle it. You’ve got to take control of it!

And one of the largest expenses you’re going to have in retirement are your health care costs. And fifty-three per cent of individuals recently polled couldn’t even estimate what those health care costs are. We’re talking Medicare A, and B, and D, and your estimated premium payments, and your estimated out of pocket expenses. These are some expenses that you’re going to have to, you know, pay in your retirement. So the question is, in your life expectancy, what are they going to be, what kind of a lump sum, under certain assumptions, will you need to have in retirement? And of course the question is- do you have that set aside? You may, you may not, but let’s try to quantify that on a piece of paper.

I have some wonderful software that I’m going to be working with clients with in the next couple of months to try to put that number down on a piece of paper so that we can say, “Boom! This amount of money is what, under these assumptions, we’re going to need for the healthcare costs for the rest of your life.” So the question is, have you done that for yourself? Maybe you have. If you haven’t, give me a call I can try to help you answer that question. It’s a hard number to really put down, things are always in motion, but you know what, let’s try to estimate as best we can. An estimate is better than not having any idea at all. And it is something we can revise as the years go forward.

So anyway, that’s kind of what’s on my mind this week. Mike Brady, Generosity Wealth Management, 303.747.6455, here in Boulder, Colorado. A comprehensive, a full service wealth management firm; I love my clients, I have a great passion to treat my clients like members of my family, and if you’re not my client, I’d love to talk to you about whether it makes sense if what I do is right for you, or if I’m the right person to help you with that. So, anyway, you have a wonderful week and we’ll talk to you later bye bye now.

Dynamic Asset Allocation Coming Soon

Dynamic Asset Allocation Coming Soon

Within the next few weeks you’ll hear more and more about some of the enhanced investment management techniques here at Generosity Wealth Management.

There are different types of investment management strategies, and it’s my goal to have a portfolio of them for my clients.

That’s enough of a teaser for now, but more will be forthcoming in the next couple of weeks.

 

Asset allocation and diversification strategies cannot assure profit or protect against loss.  Past performance does not guarantee future results.