Financial Planning Archives - Page 5 of 10

One Year Ends and Another Begins

Jan 8, 2014 | Financial Planning, Market Commentary, Videos

2013 was a great year for stocks/equities in general, and pretty bad for bonds. If only we could rewind the year and go 100% in stocks.

But would that be wise? Sure, in hindsight and only since we know how it turns out. But investing doesn’t work that way. We work in the unknown, crafting a disciplined investment strategy that helps a person reach their goals.

I have a full 2013 recap and 2014 thoughts in my video, so I highly recommend you watch it.

Hi there, Mike Brady with Generosity Wealth Management, the comprehensive full-service wealth management firm headquartered right here in Boulder, Colorado. Today I want to talk about 2013 and 2014. We’re going to go over some graphs and charts together. I’m going to walk you through it. I also first want to talk about the big picture. Now, I’m going to use an analogy here if somebody wants to be healthy in their body and maybe lose some weight and just generally better fit. You might go to a nutritionist and set up a goal by how much they want to lose by a certain point in time. My experience has been that those people who lose that weight, consistently meet their healthy goal are sometimes the most disciplined individuals. They know where they’re going, they make tweaks and adjustments along the way no questions about it, but they are very very disciplined. The reason why I bring that up is it’s the same way in the financial world in my experience.

Twenty years ago I did financial plans for people and some people, now that we fast forward today, some people have met their goals and some people have not. It’s those that did not meet their goals usually not because they bought a mutual fund A and mutual fund B or they bought the wrong investment. It usually was because they weren’t quite as disciplined as the person who has now met their financial goal. The person who has met their goal knew where they were going, they had that financial plan, they stuck to it, and they didn’t get too side tracked by the bright shiny objects. Sort of like with that health person somebody that knows what they’re doing and sticks to it, but they’re not going through the popcorn diet one week or the pumpkin diet the next or maybe even the grapefruit diet, whatever the National Enquirer diet of the week was. The financial world is very similar in that they absolutely made tweaks along the way, they make some adjustments, but they’re also quite disciplined and understand that they’re trying to get to a goal with the least amount of disruption along the way.

The reason why I bring that up is 2013 was a year where if we could rewind it 12 months ago you would say let’s go 100% into the unmanaged stock market indexes of some type because they did very well in 2013. The Dow to the S&P with joint managed stock market indexes between 26% and almost 30%. One of the tendencies is I think for people to say wow I’ve got to have all this equity exposure going into 2014 or 2015, and the disciplined enough need to say that is not the reason why you do it because why you would go into a higher equity position for 2014 and 2015. It also was not very helpful to say oh gosh I should have had it and I meant to do it and I knew it was going to be a good year, we don’t know that, that is all mental head garbage about what was known at that particular point 12 months ago. In the construction of a portfolio let’s keep in mind that each client and you are one of those people who are trying to get to a certain point in the future and we need to keep disciplined as we’re going towards them.

This past year you’ve got stocks and bonds and you usually mesh them together like this, you might have other kind of satellites around there whether or not it’s real estate or gold or other types of maybe satellite investments from your core investment and sometimes the stocks bring up the whole portfolio. Sometimes the stocks bring the whole portfolio down. This year the stocks brought it up, the bonds kind of brought it down, and depending on your percentage allocation between stocks and bonds because each investment is different with their particular goals and objectives, things of that nature, depends on what your rate of return was for 2013. Bonds did not do well last year. Last year was one of the worst years for bonds in a very long time and so in hindsight you wish you had zero bonds, but no it still makes sense for you to have an allocation of both stocks and bonds and it’s my belief that bonds were actually oversold and it still has a great place in your portfolio.

I’m going to throw a chart up on the screen there and what you’re going to see is for 2013, that green right up there junk bonds did really well. It also correlates very highly with the stock market. Beyond that pretty much all the bond indexes were negative, whether or not that was muni, whether or not that was a treasury; pretty much all the bonds were negative for last year. Why did 2013 turn out to be so good for the equity markets? As we look back at it what you’re going to see is there are some hurdles that were removed. You’ve heard me for a long time talking about the continent of Europe and all the issues that are there, but the European Central Bank made some overtures that they’re going to help backdrop some of the government problems. It hasn’t come through yet, but they have said that and the European markets last year did very very well, in the 20% in general. Even though the economy is growing very slowly, so there is a disconnect between what the economy is doing, but also what the stock market had done and that’s a real key thing that you’re going to hear me say a couple times here in this video is what the economy is doing does not necessarily equate to the performance of the stock market, either good or bad.

We also had a lot of fiscal cliff issues the past year, but they really had a minor impact. I mean 10 out of 12 months last year were positive for the stock market, so that tail wind is up. Plus we need to look at the financial profit and growth, Expenses are very low in companies their profit margins are very high. Look up at that sheet there. I put on there the corporate profits right there at the top there. Profit margins are very high, which I think is good and I think bodes well going into 2014 and 2015, particularly because of the amount of cash that has been kind of thrown into the market through all of the quantitative easing and all of the fed action. One of the things that we’re going to hear an awful lot about in 2014, is whether or not there is going to be a tapering. I think that if things continue as they have been going for the last six to 12 months we’re going to hear more and more about that tapering. If December has shown anything the tapering has already started, though was not in effect. The amount of cash, I think of it as a bowl we put lots of money in, just because we’re not putting more money in doesn’t mean that all the money that has accumulated in that bowl just automatically evaporates. No, it’s still there ready to be invested and ready to be loaned out, etc. In 2013, we also had a lot of stock buy backs. We also had a lot of dividends and earnings that were distributed, so it was just absolutely a great year for the stock market as a whole.

I wanted to show you this next graph here or next chart, it’s the S&P 500 price of earnings ratio. That’s something that you’re going to hear an awful lot about going forward. Right now you can see that at 15.4, that’s the price over the earnings and earnings went up. The prices went up quicker than earnings, so the number has gone up. It is higher than it was a year ago still below the 15-year average. That 15-year average also include those crazy 1997, 1998, and 1999 years when the S&P PE ratio was in the 30s and the 40s. I remember those times and it was crazy. You’re going to see that from a real earnings chart up on the screen right now the trailing it is still cheap. The reason why that number is going down is only because it’s relative to the price and so the prices have gone up faster, but it’s still relatively cheap. You can see that dotted line when it gets below that dotted line is when it starts to get more expensive. Now you’ve heard me talk about the bond markets doing poorly last year. This is a 70% increase in a 10-year yield in 2013; you don’t need to know everything about that yield. I have to admit I’m a little bit of a 10-year yield nerd; I love to watch it on a daily basis. When the yield goes up the reason why the yield has gone up is because the price of the bond has decreased. Now here is a long-term trend, but in one year it really spiked up. You can see it right then and there. Then you might say to yourself “oh my God it’s at almost 3% right now, if it continues to go up then the stock market obviously is going to go down. That’s not necessarily the case.

Look at this next chart here and what you’re going to see, and I’m going to kind of put some arrows there about where we are right now, that’s the correlation meaning a correlation of one is two things move exactly the same way. If one goes up the other goes up in equivalent of that’s a correlation of one. If one goes up a little bit, 10% let’s say, and the other one goes down 10% that’s a negative one correlation. The correlation is still positive meaning that when one goes up the other continues to go up as well until the 10-year yield gets to be about 5. Then there seems to be a real opposite between what the bond yields do, which is based on the bond price going down, and the stock market price going down as well as money is flowing into those bonds to get the higher yield. Let’s talk about what happened in 2013 for the global market. You can see that European, Australia, and far east did very well last year just like Europe did, Pacific did, and emerging markets did not do as well last year. What is interesting is this, this next chart there; all the emerging markets are on the top. The emerging market GDP growth, which is the national income of that country is all between 4% and let’s say 8%, but their markets did not do that well.

When we look at the bottom chart you can see the developed market, that’s the U.S., the UK, Europe, etc., and our year over year growth has been around 2% or so, but yet our market says almost in the high 20s, so there is a disconnect between the magnitude I would say between what happened with the GDP, but also the particular stock market. A lot of it has to do with is it already overpriced, did it go too fast and now something else is trying to catch up to it. That kind of concept of the economy does not necessarily mean that the market is going to do exactly the same. One thing I want to throw up on the chart again is the annual returns per year going back oh a good long time, a good 30 years and you’re going to see that most years, those red numbers down there, most years there is a decline of a double digit.

Now let’s kind of talk about 2014. It is difficult to make a prediction about the future. It’s just that simple and frankly I’d avoid the whole thing if I could, but everybody expects it. I think we need to take it with a grain of salt and this is going to get back to our discipline here in just a little bit. I am optimistic for 2014 and 2015. I stay behind what I said 12 months ago, which is that we ought to have good managers that take advantage of some trading ranges and if we have a whirlwind like we did last year, great, we positioned ourselves to be a part of that because we have a diversified portfolio, if 2014 turns out to be negative. Then we still need to have some bond exposure because I believe the bonds will do well if the stock market does poorly. As we create this portfolio together I think we have to probably increase our equity exposure in general, that’s what I’m doing in general, but each client is specific. Please don’t make changes if you’re not a client of mine without talking to me or really talking with her specific advisor. If you’re one of my clients you know that I’m going to be talking with you about that. We’ve got to be disciplined in regards to not getting crazy.

The thing that makes sense for you and your goals to be a conservative investor don’t start going I want to go all equity or I want to go aggressive, etc. because one of my jobs with you is to be a behavioral finance guy meaning that the exuberance and the excitement to say oh my gosh let’s double down, let’s go all in, real investors unfortunately many times buy at the top of the market and sell at the bottom of the market and we want to be the smart money and not do that. We want to be the smart money and many times invest and stay disciplined to our plan even when we’ve got some bright shiny object or a new diet plan has come up, etc., we want to kind of quick make adjustments. That’s what I’m doing with some of my client’s portfolios, is making those adjustments, but also sticking to what we have, which is a diversified portfolio perhaps a little bit more equity exposure, but not getting crazy on it. The reason why I’m a little bit more optimistic going into 2014 and 2015, is the amount of cash that we have in there, the great efficiencies that we’re having that it’s going to continue to play out I believe in 2014 and 2015, for companies. I think that some of the tapering is not going to affect things as greatly as so many people feel and so I think that’s going to be maybe not a nonevent, but a big enough event as we think going forward.

That’s it, that’s my year-end review. That is kind of my 2014 preview, but my biggest thing is the safe discipline with having good portfolios. If somebody reaches their goal before you so what, you’ve got your goal, your plan, your risk tolerance, you stick to it. You stick to that particular plan. It might sound boring, but you know what, sometimes boring wins the race. Mike Brady, Generosity Wealth Management. I’d love to hear from you 303-747-6455. You have a wonderful day, thank you.

Is it time to run for the hills?

Sep 20, 2013 | Financial Planning, Market Commentary

In my video today, I ask the question “is it time to run for the hills, or jump off the ledge?” because of the recent increased volatility and decline in the markets.

Let me give you the short answer: no.

The bond correction was an over reaction, and the most recent equity dip is not a precursor to some big decline. At least not in my opinion.

For a full discussion of this, listen to my short video where I expand on these ideas.

Hi there, it’s Mike! Friends, Mike Brady here with Generosity Wealth Management – a comprehensive full service wealth management firm right here in Boulder, Colorado and today’s conversation is about whether we ought to run for the hills, find that ledge, and jump off it, because if you’ve been watching or reading in the news recently the volatility has gone up in the unmanaged stock market indexes and some of the bond markets as well.

They’ve decreased and the answer is no, I don’t believe that we should jump off that ledge and I think this is a short term correction to what we’ve seen. Let’s talk about the unmanaged stock market indexes first and foremost; your S&Ps, your DOWs, your NASDAQ, etc. I’m going to put a chart up there on the screen and if you have been watching my videos for a long time, you’re very familiar with this chart.

It is normal for there to be intra-year decline throughout the year, going back years and years and years. Every year there is one and every time there is one, we always freak out and forget that that’s a normal thing. I think this is going to be one more of those normal things, not the beginning of some huge decline where we lose 20%, 30%, or 40%. I just don’t see that with all of my analysis.

I also think that it’s going to be relatively short lived as well. Let’s talk about the bond market. The yields have spiked up in relation to the bond prices going down. Back in June, Ben Bernanke was the chairman of the Federal Reserve. He made some comments about starting to taper off. Now of course, he’s taken all summer to kind of back off some of those comments, but essentially let’s think about money in the economy as money in a bowl.

Here, kind of look at my hands there. Money in a bowl. You could put money into it; you can take money out of it. For the last four or five years, we have definitely been putting money in there by decreasing the interest rates, but also doing a bond repurchase. What he said back in June was not that we were going to start taking money out of it, but if we’re stop one of these two levers of putting money in – the bond repurpose.

You just said we’re going to put in – we’re going to buy left backs or we’re going to put less money in. Also, there’s an accumulated amount of sums and money in there already. I think that the concern isn’t overreaction and it took us a long time to fill this bucket with a lot of money. It’s going to take a long time for that impact to really be felt. At this point, there’s money in there for banks to lend out and they are definitely doing that at this point.

I think that the reaction even on the bond market, is an overreaction and I’m not freaked out about that as well. It is important to have a portfolio that has both stock and bond components in general, being very general, each client is different of course. The percentage that you have in those two of course is specific to what you’re trying to do with your particular strategy, whether that’s your retirement strategy or growth strategy and income strategy, etc.

The mix between these two, some things zig when the others zag. At this point, the equity markets in general have that. All of the bond markets in general have been down so they’re going to compete in force this year. In previous years, it’s been reversed where the bonds have done well and maybe sometimes the stocks at various points have gone down, so having that mix makes a lot of sense.

I’m going to end this video with something that I really like from Warren Buffet. Back in 1975, he wrote a letter to Katharine Graham who owned the Washington Post and he basically told her to keep the long view, the long picture in mind. Think of it as he wrote in the letter of a thousand coin tosses and there are going to be times when five or 10 of those are going to be in a row all head or all tails.

You might see it all-sided one way or the other, but it really is just a short time frame that does go back down to normalization. It’s the same way when we’re looking at investments. We’re here for the long term. We shouldn’t get too excited if there’s a month or a quarter or even a year that’s off. They do have a tendency to go up and down in value.

The reason why we have investments, of course, is that we assume that the future value will be greater than today. Whether that future value is five years, 10 years, 20 years – whatever it might be. Otherwise, why would we have investments? Why would you put it in there? You’d put in your master of storing in the bank savings account.

It’s important to take that into consideration that there are times both five to 10 coin tosses as Warren Buffet says, but we’re really kind of looking at it as we’re building this portfolio up together that works for us with our particular risk tolerance level and what you’re really trying to achieve. You’ve heard me, ad nauseum, talk about how important the strategy and the retirement analysis and the plan is and that we then use managers and other investment vehicles in order to support that particular strategy.

Let’s keep our eye on that particular strategy.

Mike Brady, Generosity Wealth Management. There was an awful lot here in a short amount of time, but I like to make my videos short, and pithy, and to the point. Hopefully today I achieved that.

Mike Brady, 303-747-6455.

Have a great day!

What is Generosity Wealth Management’s Dynamic Value?

Jun 19, 2013 | Estate Planning, Financial Planning, Videos

It’s been my experience that when people don’t reach their financial goals it’s not because they failed to buy stock A over stock B, or bought this mutual fund over another.

Most of the time, it’s the bigger questions they’ve failed to answer, like “am I spending more than I earn?” or “what happens if I lose my spouse?”.

What is the dynamic value Generosity Wealth Management brings to the table? A = helping clients answer and address these issues, and keep the big picture in mind.

For a full discussion of this, listen to my short video where I expand on these ideas.

Good morning. Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm, headquartered in Boulder, Colorado.

Today I want to talk about the dynamic value that I bring as a professional to the relationship with my clients; or at least my philosophy of where I probably add the most value. Here it is:

Point A is today. Prospective clients come in and they usually have a point B; what their goals are in the future and most of the time that’s retirement. Of course there’s usually a point C as well which is not outliving your money. So there’s a point B, something that we’re striving for in the future and of course a point C which is a secondary goal which is not outlive their money. Where I add value is all the planning from point A to point B and of course to point C. All the decisions that are there.

Understanding and explaining with the client and working with them the interdependence of all the various variables of; the saving, the investing and when to retire. All the decisions around retirement, how much the particular portfolio supports with various assumptions, upon retirement or withdrawal. All those various decisions- because what my experience has led me to really understand is when someone has not reached their particular goal it’s usually not because they bought stock A instead stock B or they had mutual fund A instead of mutual fund B; it’s because they frankly, didn’t save enough money; they spent more. Here’s your income and here’s your expenses and the expenses were greater than the income. They just didn’t save enough. Or it’s because they had some kind of a catastrophic event along the way like the loss of a spouse, the loss of a job, the loss due to some kind of a disability; and so part of that planning process is to proactively identify and talk about what are the contingency plans that we should have that could derail the great plan that we’ve come up with together. Many times that’s trying to identify them and have a plan for them. So that’s where I think I add some of the best value in the relationship.

I do believe that just having the appropriate investment plan that’s consistent with the risk level and the tolerance and the goals of a client are absolutely essential. I don’t want to minimize that in any way; however, I do want to say that that’s kind of the sexy part that everybody likes to talk about but I think what people really should focus on is that planning and a contingency for all those things that could derail that particular plan. That’s where I add the dynamic value to the relationship.

Mike Brady, Generosity Wealth Management 303-747-6455. Hopefully you’re my client; if you’re not my client hopefully you’ll give me a call and we can talk about what that client/ advisor relationship would look like.

Mike Brady, 303-747-6455. Have a great day. Thanks, bye, bye.

Long Term Investing

May 28, 2013 | Financial Planning, Retirement Issues

It’s my belief that the longer your time horizon, the more it starts to be your friend.

What do I mean by that? Investments of all nature tend to be cyclical, meaning as a normal course of business they go up and down. The longer you’re invested, the more of these intermediary “cycles” you’ll experience, with the end goal eventually being up. If you don’t believe that long term the value will be greater, then why are you investing?

Anyway, many times people say “but I just retired and I’m no longer a long term investor”. My answer is that I hope you’re still a long term investor, as I hope you live a long life.

For a full discussion of this, I highly recommend you watch my video. Good stuff (if I do say so myself).

Good morning, Mike Brady here with Generosity Wealth Management, a comprehensive full-service wealth management firm headquartered right here in Boulder, Colorado and today I want to talk about how long-term investing is probably going to be better on your stomach and being able to sleep well at night. I want to really talk about that.

You might say to yourself, “Mike, I’ve heard that before but I’m not a long-term investor because I’m retiring next year or I just retired.” All I would respond is, “I sure hope that you’re long-term because hopefully you’re going to live a very long and fruitful life all through retirement and you don’t want to outlive your money so even though you might think that you can’t be a long-term investor, you probably are.”

I’m going to put two or three different charts up on the screen so pay attention.

The first one is the 100% unmanaged stockmarket index over the last 15 years. You’re going to see it up, down, up, down, all over the place and by looking at this chart you’re probably saying to yourself, oh the market’s gotta go down. Well, I’m just saying that’s not necessarily the case.

I’m going to put the second chart up if you could pay attention to it and this is the 100% stockmarket index over a 113-year timeframe and what you’ll see, there are some times where it plateaus, sometimes where the trend is down, and times when it’s a generally up-trending market.

The third chart that I’m going to put up on the video is the range of returns over a one, a five, a 10, and a 20 year time horizon. What you’ll see, is as the time horizon is shorter, whether it’s unmanaged stockmarket index, unmanaged bond index, or a 50/50 between the two, the shorter you go the more volatile the standard deviation as we call it, it gets greater and the range of return is very high or very low. As we go out from left to right on that chart, what you’ll see is the band starts to get narrow and narrower. I bring this up because many times we have a tendency to look at things on an hourly or a daily, particularly with the 24-hour news channels and cycle anymore, weekly, monthly, even quarterly or annually, when really we need to keep our eye on our plan and start to look at things from a long-term vision.

Of course you should work with your financial advisor, hopefully I’m that guy, in order to find a plan that works for you that you feel works with your particular goals and your risk tolerance, etcetera. We do have to keep a long-term vision and of course review it, how it’s fitting with our plan, but let’s start thinking long-term.

Mike Brady, Generosity Wealth Management, 303-747-6455. If you’re not my client, give me a call and we’ll talk about it. If you’re my client, I love you and I think that’s it for today. You have a wonderful week, wonderful day, wonderful week, wonderful quarter, and of course wonderful long-term horizon as well. Bye-bye now.