Life Expectancy and Costs

Do you know your life expectancy?  What does life expectancy really mean, and why should we care?

 These are the questions I answer in my video this newsletter.

Therefore, you should watch my video.

Hi there, Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm headquartered here in Boulder, Colorado. Today I want to talk about life expectancy and withdrawals and Medicare and Social Security, etc. To be honest with you I only have three or four minutes so I’m only going to give you a little teaser and then I’m going to follow up in the next video.

The first one is life expectancy. If you are 65; I’m going to put up on the chart there, on the video, a chart. What you’ll see if you are 65 years old and you are a woman you have an 85% probability of living up to age 75. That’s a high probability of course. If a couple that are 65 years old the probability of one of you living past 75 is almost assured at 97%. We go out to 80, 85, 90. Let’s just look at 90 years old; if you’re 60 years old, from 75, 85, that’s 25 years to age 90. If you are a woman you have a 1 in 3 chance of living to 90. Periodically I’ll meet with someone who will say; well you know my mother and father they died in their early 80s and there’s no way I’m going to live to 90. Well, you know what, there’s a 1 in 3 chance that you will. Do you want to be that one and spend all your money in the next 25 years? Probably not; plus, many times our parents, that’s just kind of the way it worked. That generation they were smoking and drinking and all kinds of stuff and now we’re always eating kale and gluten free stuff so chances are we’re probably going to live a little bit longer. That’s what statistics have shown us.

One of the values that a financial advisor brings and I always bring to the relationship with clients is life expectancy, that’s usually; if my life expectancy is 85 or so I’ve got to make sure that I plan for much longer than that because that’s using the average. I think that chart there starts to show it. The reason why I bring that up is in retirement; I’m now going to throw one more chart up there for today and what you’re going to see is extending my age and category. From left to right it adds up to about 100%, some rounding and stuff like that, but the gray is the 10 years leading up to retirement at age 65. Then you hit 65 and then above. What you’re going to see is some housing and other increases as a percentage. Transportation goes down. Medical care of course goes up, etc. What we’re going to see on the bottom there is the average inflation from 1982 to 2013 of those particular categories. You’re going to see the medical care which is a higher percentage has a tendency to increase. You know this; you’ve been paying attention the last five years and I’m stating the obvious. Other things; housing is still almost 3%. The percentage of; the items that seem to go up as a percentage of your income also has some high inflation to it as well. That’s something that we have to keep in consideration. We live longer than what we think we’re going to do and many times things are more expensive than what we think as well.

Gosh, do I have time for one more really cool thing here? Here is the variation in healthcare cost. See that little graph there, the little United States there? What you’re going to see is the annual Medicare cost and in Colorado we’re right in the middle. We’re not on the cheap side like many of the world in blue, we’re between $3750 and $4500 and then $4500 after that entry has to do with those with traditional Medicare and comprehensive Medicare depending on where you live in retirement. We’re going to talk a little bit more at another video of some long-term planning, withdrawal strategies. One of the things that a financial advisor brings to the relationship are all the strategies about the de-accumulation of the portfolio; you’ve got the accumulation stage where you’re trying to save money and 401(k) all this type of stuff and then you hit a point and then it’s the de-accumulation. What’s your strategy? What’s your mix? How can you set things up to limit, to make the probability that you’ll outlive your money as low as possible because that’s of course a bad thing. These are some of the things I’m going to talk about in upcoming videos. Nice to talk to you today, sorry it’s so short but I did want to be short and pippy.

Mike Brady, 303-747-6455.

You have a great day.


Investing in Previous Year Winners

One thing to watch out for is assuming the future will reflect the past. As a matter of fact, that whole “past performance is no guarantee of future result” is actually true.

So, looking at history over the past 14 to 15 years, what would happen with your returns and volatility if you had invested for the year based on the best asset class for the prior year?

Inquiring minds want to know.

Therefore, you should watch my video.

Hi there, Mike Brady with Generosity Wealth Management, a comprehensive full service wealth management firm headquartered right here in Boulder, Colorado. Today I want to talk about volatility, I want to talk about diversification and picking an asset class based on the prior year’s returns.

I was at a conference maybe two weeks ago, three weeks ago, something like that and this presenter had these charts, which I’m going to share with you today, that I thought were so fascinating. A lot of it has to do with setting yourself up for success. You’ve heard this if you’re watching my videos, as I certainly hope that you are, about setting yourself up for success because I’ve heard I just want the highest return, volatility doesn’t matter.

Well, my experience has been that volatility only matters when you’re right in the middle of it and it’s happening to you. Therefore, let’s set ourselves up for that success. I’m going to throw up here on the chart an example of all kinds of asset classes that you could have been in. You go back all those years and all the different colors and each one of them are stocks and bonds and international and commodities and all different types of asset classes. Now, let’s pretend like we’ve invested, so the highest one for each one of those years keeps changing because you can see that top row there the color keeps changing. If we took the previous year’s highest, the one who won for that year, and you invest in it the next year, what do you think would happen with your returns?

Well, this chart that I just threw up on the video will show you that the blue line there and this is a little bit cherry picking because this goes back to the beginning of 2000 and if you remember at that time it was right after the internet craze and I remember, I mean I’ve been doing this for 23 years, and the confidence level of all these people were oh my God, you’ve got to get into internet and you’ve got to do this, look at how great it did in ’97, ’98, ’99, I mean you’re a fool if you don’t do this. If you had done that, look at that blue line, the blue line is for the last 13 years if you had picked and invested your money into the previous year’s best asset class that’s what happens, okay. The red is if you invest in the worst asset class for the previous year, but if you invest in a diversified global diversified, meaning global stocks and bonds and some cash, then you’ve got that green one right in the middle. It’s not as good as going right into the worst. It’s definitely better than going into the best, but it also is a slightly smoother ride, which is absolutely essential.

This next graph I think is really interesting in that the red is the 100% stock market index. What would happen if you got only 50% of the decline so if it went down 50, you went down 25, and you only got 50% of the up so that it went twice as much up as you did, you would have that green versus the red, so the red is what you would have if it was $1000 or a million, it doesn’t really matter, but you would have a much higher rate of return with a lot less volatility just by having half of the down and half of the up because if you recall losing 50% means you have to have a 100% return just to break even. If you have $100 and you lose 50, that’s $50. You have to make 50 on 50 just to break even. If you lose 20% you have to make 25 just to get back, lose 33 you’ve got to make 50, that’s just the way math works.

There was one other chart that I really wanted to share with you. This chart right up there, this is my last one for the day, which is on the right-hand side there, the question is the cycle of emotion. You go through some caution, some confidence, enthusiasm and greed, and then you go to indifference, denial, etc., all the way down there, so our emotions. I’m a behavioral finance guy who’s interested in that, that some of the nontechnical aspects that we bring to investing are as important, if not more important than some of the technical aspects. I just acknowledge that and so I’m always wanting to set ourselves up for success. These are the types of things that I talk with clients about all the time and if you are not one of my clients I’d love to talk with you about it.

Mike Brady, Generosity Wealth Management, 303-747-6455. Have a great week. We’ll talk to you later. Bye-bye.


First Quarter and into the Rest of the Year

The first quarter is now behind us, but all the excitement happened in the first week of April!

After reaching new highs, the unmanaged stock market indexes pulled back a little bit, so the question we have to ask ourselves is “what does this mean for the rest of the year?”.

Good question, and one I answer in the below video:


Hi, this is Mike Brady with Generosity Wealth Management, a comprehensive full-service wealth management firm headquartered right here in Boulder, Colorado, and today I want to talk about the first quarter review and the rest of the year preview, but I also want to talk a little bit about time horizons and our perspectives, recency bias, a confirmation buys, those things of things.

The first quarter review is both stocks and bonds, unmanaged stock market and bond indexes were positive for the quarter. Bonds were really bad in 2013 and if you could go back to 2013, you’d have no exposure to them. Well, you were vindicated in the first quarter. They were really what brought up a balanced portfolio for the first quarter of this year. The stock market started off well in January; we only kind of stumbled; dropped around 6% at the S&P. The unmanaged stock market index S&P 500 dropped about 6% through the middle of January to the middle of February and they kind of came back and of the dictating this video, I’m not – let’s see, this is April 8, Tuesday – that we’ve given up some of that gain that we had in the first quarter, so we’re about breakeven for the year in the unmanaged stock market indexes. I think that it’s real important to know what your time horizon is and the reason why I bring that up is if your time horizon is weeks or months or if you need the money for some kind of a purchase in a year or two, these kind of fluctuations could be really kind of scary; however, we’ve got to take a big picture on this and really look at it from the long point of view, because if you’ve ever held up like a piece of paper that had some ink on it really close to your eyes, you can see the actual droplets of the ink. It’s only when you go backwards, kind of some distance from it that you can really see how everything kind of fits together. I’m going to put up on the screen there the S&P 500 for about the last, let’s see, what is that, 14, 15, 16, 17 – 17, 18 years or so, and you can see that it goes up and it goes down, et cetera, and so the question we might have is this big upward swing there. I’ve frankly been hearing from people for two, three, four years about how, oh, we’re at the top again, and then when it hit those new highs a year or two ago, oh my, gosh it can’t go any further.

Well, you know they always joke that economists have predicted 15 of the last three recessions, okay, and so it’s always easy to be negative. It’s a little bit more difficult to be positive. I’m going to put up on the screen there again; this is annual returns in intra-year declines. You can kind of see that far right-hand side there, the year-to-date number and then that red number underneath is that we had a 6% decline throughout the year. That was the maximum decline that we had for all of last year, so it’s actually been relatively low historically from a top to a bottom within a year, so that’s something to keep into consideration.

I am still optimistic for the rest of the year. One thing that we have to watch out for as it relates to data is we have a tendency to extrapolate short-term events and say, wow, that’s what’s going to happen for a long-term and it just doesn’t work that way. Just because things have gone up doesn’t mean they’re going to continue to go up. Just because things have gone down doesn’t mean they’ll continue to go down and so we place more emphasis on recent information than maybe data that is six months, 12 months, or even three years old. When we look up at this one screen that I just threw up there on your video is interest rates and equities. From the left to the right is the yield that you have on your 10-Year Treasury, which as of this chart creation was 2.72; as of today, it’s actually about 2.67. Not important to know that except to the degree that the correlation between a rising, where the yield is going from 2.7 to 3 to 4 that the market is actually continuing to go up, and so they have moved in lock stock in the past.

I’m going to put up another screen there. You’re going to see that circle there. Lots of corporate cash that has continued to be a very strong thing as I see. Quantitative easing has thrown so much money into the system that that is continuing to prime the pump. If you look over on the right hand side, there, that second circle that I just did, cash return to shareholders, lots of profitability and cash being returned. Now, today’s video I’m going to make relatively short, because I’m going to try to do more videos, but make them shorter. I’ve been kind of bad this past two months or so and I just unbelievably busy. Even I want to make this short and pithy.

Diversification, while in a generally trending down market does not guarantee that you won’t lose money; it is a very wise thing to do. On the pie chart on the top left is your stocks, your bonds, your internationals; and then on the right hand side you’re going to see an even more diversified portfolio adding in some real estate investment trusts and other things like that. One of the things that I’ll be doing for the appropriate clients going forward is diversifying out. I do believe in diversification, because if this past quarter is any indication, sometimes it’s the bonds that hold up your portfolio, sometimes it’s the stocks that are the driver behind your portfolio. I think that the standard deviation, the variance, the ups and downs, the volatility is very important, because we want to set ourselves up for success and unfortunately your average investor buys at the top and sells at the bottom and really hurts themselves.

We want to set ourselves up for success by creating a portfolio that hopefully will have reduced volatility so that when the market does go down, which inevitably it does at various points, whether that’s a small decline or a larger decline, whether or not that’s a quick recovery or a longer recovery, we want to be well prepared for it with a time horizon that is long, but also not be the dump money and sell at the bottom. That bar graph at the bottom, where you’re going to see is on the far right-hand corner, the average investor, when we take into consideration inflows and outflows of the stock market, mutual funds, things of that nature, unfortunately does the wrong thing at the wrong time and we simply don’t want to do that. I continue to be optimistic for 2014; I have not changed from that. I encourage you to go back to my January video and I lay out in 17 minutes or so an argument for that – that has not changed. I’m not freaked out. I am completely, if you can see my hand there, I’m completely rock steady, so that’s where I am.

I am going to continue to add a couple of extra asset classes to sell clients, and many of you, I’ll be talking with you about that. Some of the upcoming videos I’m going to do is I’m going to read Michael Lewis’s Flash Boys on the high-frequency trading. Everybody get, but I’m going to dissect that and give my opinion. I also want to really talk about social security; I want to do a whole series frankly on social security and Medicare, retirement and all of those things, because I think that’s very relevant. One of the values that I can add is what’s the right stuff to own, what’s your withdrawal strategy, et cetera, and I just find it all fascinating and I think it would be a great value to you.

If I can help you out in any way, please give me a call. Mike Brady, 303-747-6455. Stay tuned for another newsletter after this one. Have a great week. Bye-bye.




Confidence in Retirement

One third (1/3) of workers and retirees have less than $1,000 in savings and investments in their retirement nest egg.

Only 44% have done a calculation to find out how much they should be saving.  Confidence in Retirement Picture

 With longer life expectancies, your retirement years can be the best years of your life, but outliving your money is a real risk!

 One of the biggest and best values I bring to clients is the ability to put the pieces of retirement planning together, and chart the progress along the way.

 Please contact me if you feel I can help you with your retirement planning.

 Retirement Confidence Rises, but the Data are grim

January Volatility

In my video today, I discuss the most recent January volatility in the stock markets.

Does the worst January in the Dow since 2009 mean we need to change our strategy?

Is there any change I recommend since my last video about 3 weeks ago?

For the answer to these questions, listen to my 4 minute video.

Beneficiary Update

Now is a great time to ensure your beneficiaries are consistent with your wishes.

But you have a will? It doesn’t matter if it’s an IRA, 401k, or other typ
e of account that transfers by “contract” vs. through probate.

Have an ex-spouse you used to have as your beneficiary but are now remarried? You have to proactively change it to your new spouse if that’s what you want. It won’t change by itself!

Talk with me if you need a good estate planning attorney recommendation.