Investment Planning

Why Being an Investor is Like Being a Sports Fan

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As an enthusiastic fan of the Detroit Tigers, I entered into this baseball season with high expectations.  According to Las Vegas odds-makers, our local team is the favorite to win this year’s World Series, given the talented roster we have in place.  As the season has gone on, I have found myself riding a rollercoaster of emotions as the team has had impressive streaks of success, as well as discouraging displays of mediocrity.  In a way, this reminds me of the emotions many of us feel as investors as we watch the ebbs and flows of the stock market.

Behavioral Finance

Behavioral finance is a term used to describe the behavioral and psychological reasons why people make irrational financial decisions.  Interestingly, many of these behavioral tendencies are similar to those of sports fans.

  • Following the Crowd (herding) – As investors and as sports fans we may jump on and off the bandwagon. As investors, we may panic and decide to make dramatic shifts in our asset allocation in reaction to a market downturn or upswing. As sports fans, we may bet our entire fortune on our favorite team when they’re winning or move our allegiance to another team altogether when they’re losing.

  • Short-term Focus – With investments, as with sports, we care about what’s happening now, but can lose sight of the long-term goal. It is hard to keep in mind that the 5 game losing streak (or 5% market pull-back) may have little to no impact on the team’s record after 160 games (or achieving the results we need to meet our retirement goals).

  • Finding Someone (or Something) to Blame – When things aren’t going well, there is always a scapegoat. When our favorite sports team is doing poorly, we can always find one player or coach that’s to blame. When our investments aren’t performing the way we’d like, we can find an investment vehicle or manager to blame. Know that if you have good line-up and a solid strategy, there is no need to place blame (especially when the investment you blame now may be your best performer next year!)

The ability to avoid reacting irrationally is the sign of a long-term investor and of a loyal sports fan.  When it comes to investing, your financial planner can be your best coach, helping you to stay in the game, even when the going gets rough!

Sandra Adams, CFP®is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investing involves risk and investors may incur a profit or a loss.

A New Kind of Bucket List

 Retirees love to talk about their Bucket Lists, their current adventures and travel, and all the things they would like to do before it is too late.  You can have great fun constructing this checklist of what is possible, what is probable, and maybe some things that are way out there.

This Bucket List theory can also apply well to retiree financial situations.  We know the volatility of the stock market causes people angst, distress, and can leave them unable to make decisions.  But think of your finances in two separate buckets.  The first is a cash bucket that has up to 18 months or possibly two years worth of cash that will be used for current spending.  This bucket includes pensions, social security, and income from investments that should be there for the designated time.

The second bucket is an investment bucket with a well-diversified portfolio, preferably managed by professionals. Although we never lose sight of the second bucket, we can let it ride through the normal gyrations of the financial markets.  This strategy can help provide investor confidence.

Our cash bucket can be replenished by adding dividends from the fixed income portion of our investment bucket.  Some folks like to add a third bucket, a wish list bucket to have cash available to fulfill the traditional Bucket List of adventures.  This can be filled when we do not spend as much as planned and with potential excess appreciation of portfolios.

So while you’re dreaming up exotic destinations, mountains to climb, or wineries to visit, also make plans to fill your financial buckets. It will make it much easier to check off the things you’ve waited your whole life to do!

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Diversification does not ensure a profit or guarantee against a loss.  Dividends are not guaranteed and must be authorized by the company’s board of directors.

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Tales of Inflation

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 As a kid I fondly remember sitting around hearing stories from my parents’ childhoods.   While I gave some stories more credence than others, there were many interesting lessons to learn if you could get past the obvious embellishments.  For example, even at a young age, I recognized it was impossible to walk up hill all the way both ways to school if there was only one route to take.  However, other stories show the power inflation can have on our buying power as is exhibited in the chart below.  Perhaps Dad wasn’t embellishing when he said a candy bar only cost a nickel.

The chart shows that $1 today only purchases what a nickel would have purchased in 1871 and again in 1933!  While inflation is quite low right now (1.4% as of the June 18th 2013 report by the Bureau of Labor Statistics) it likely won’t stay this way forever as history has shown.  Inflation can have a devastating effect on retirement planning if your plan and asset allocation aren’t structured to handle it. 

Someday, while my daughter may never believe I lived without an iPad (or whatever the advanced version is at that time), she will surely roll her eyes at the idea that a Starbucks latte cost less than $5 in 2013! So, while I suggest properly planning for inflation, you might also collect a little evidence in the here and now to back up your stories down the road.

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

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In Life & In Investing, Knowledge is Not Experience

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 Some people are very smart; they have many designations and/or degrees.  They are well-read in the big topics of life. But that does not mean they are experienced in all areas.  The luxury of working with fantastic entrepreneurs, scientist, doctors, lawyers and accountants is a daily way of life at the Center.  These fabulously smart people in their area of expertise delegate the area of their life that they don’t have the time or interest that is necessary to become an expert.

When the financial meltdown was fully in gear between September of 2008 and March of 2009 and when GM and other large companies were going bankrupt, many in our industry and even more outside of the industry were losing their heads (believing that the world might actually come to an end). Internally we were discussing much more productive things. We believed that it was not the end of the world. In fact, we believed that the investments we maintained for clients were real and people would be using the products and services generated by these companies for generations to come.

A doctor told me once that an expert knows more and more about less and less.  He performed one type of surgery every day for over 10 years.   He went to medical school and spent over 12 years in total with his education, much of the last 4 years focused on one area.  He went on to tell me that education is one necessary ingredient – it’s the foundation for wisdom -- but without repetition, you don’t have experience.  At the Center we pride ourselves on the foundation of knowledge but leverage our many years of experience to help clients reach their goals.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily of RJFS or Raymond James.

Black Monday? How about Ruby Tuesday?

 Most investors are familiar with the infamous “Black Monday” stock market crash.   The Dow Jones Industrial Average (DJIA) dropped by a whopping 22.61% in one day on Monday October 19, 1987.  Many may not be as familiar with records that are being set right now for Tuesdays.  May 28th marked the 20th Tuesday in a row where the Dow Jones Industrial Average ended on an up note.  This is a record breaking streak of gains for any specific day of the week in the history of the DJIA.  The previous high count was 13 days in a row and has occurred on 3 separate occasions for Monday, Wednesday and Friday with the most recent streak occurring in 1900! 

This Tuesday winning streak that began on January 15th has included 1,573 points for the Dow or 83% of the years gains for the index as of May 28th.  The picture below is a total of Year to date points made or lost cumulatively on the particular day of the week for the DJIA. 

http://buzz.money.cnn.com/2013/06/04/dow-tuesday-streak/

There has been much speculation as to why Tuesday has been so great? 

Here are some of the arguments.

  • The federal reserve is buying bonds through their open market operations on Tuesday and Friday’s
  • Retail investors placing mutual fund buy orders on Monday, after looking at their accounts over the weekend, and then the managers are putting that money to work on Tuesday.
  • Automated trading programs that seek out trends have noticed this trend and started to buy in anticipation, and as such, perpetuating the trend.
  • Or it could just be random

While the debate of why this phenomenon has occurred may not be over, unfortunately, the winning streak itself is over as of Tuesday June 4th.

http://www.bespokeinvest.com/thinkbig/2013/5/28/20-for-tuesday.html

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

CNBC Ratings as a Leading Indicator?

 This may be the most unique candidate for a leading indicator I’ve run across in a long time.  A leading indicator is defined as a measurable economic factor that changes before the economy starts to follow a particular pattern or trend.  You may have heard of an inverted yield curve predicting recessions or the number of building permits applied for predicting a housing boom or bust.

How about CNBC viewership predicting the next stock market boom or bust?  Below is a chart showing Nielson Ratings for CNBC over the last eight years.  The last time their ratings were this low was 2005 when markets had stablized after the tech bubble burst and we had enjoyed a couple of years of good returns.  Sound familiar?

As you can see in the chart below of the S&P 500 total returns, 2005 was the start of some very nice returns which continued for the next few years.  Could the low viewer ratings be a potential indicator that the returns we have experienced since 2009 are just the beginning?  As returns accelerated toward the market peak in 2007 so did CNBC’s ratings into 2007. 

Data from Morningstar

As individual investors start to jump on the band wagon of a bull market run, they become more interested in what is happening to their money and thus turn on the news.

There are many reasons investors could be choosing not to watch the channel now:

  1. Investors have been lulled into a sense of security about market returns and aren’t concerned about current events
  2. Many are not actually invested in the markets; therefore, they do not care
  3. Investors are finding their information elsewhere
  4. They have grown tired of the sensationalizing the network does to try to get better ratings (which is actually my main reason for not watching)

Assuming investors aren’t watching anymore because of one of the first two reasons, then this could be a very good indicator of what is to come, potential positive returns as more individuals put money back to work in the markets.

It is too bad there isn’t much historical data to determine if this is, indeed, a good stock market indicator but it is definitely something from CNBC that is much more interesting to follow than their overly dramatic, TV personalities!

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well as investment updates at The Center.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Individual investor’s results will vary.  Past performance may not be indicative of future results.

Is Your Portfolio Off to the Races?

 We just got to enjoy what has been called “The Greatest Two Minutes in Sports.”  I have always been a fan of the Kentucky Derby, the horses, the outrageous hats, wondering who is wearing the hats, and a blanket of roses.  I’ve had the privilege of actually going down to Louisville to watch but I have never been part of the glamorous, hat-wearing crowd. We’ve always watched from the infield, though “watch” is a loose term. It is more like standing on your tip toes to see a blur of horses run by you for about one-tenth of a second and then return to drinking your mint julep.  But it is fun nonetheless. 

This year the market has felt a lot like we have been off to the races.  It has been one of the strongest starts to the year this decade.  Is it too much too fast?  A new chart put out by Russell Investments says maybe not.

 

For additional disclosure and interpretive guidance on this chart, please click on the following link: http://www.russell.com/Helping-Advisors/Markets/acd.aspx?d=t 

How to interpret the chart:

  1. The gray bar is the full range of 1 year returns the asset class has experienced throughout history
  2. The blue portion of the bar is where returns fall most of the time (68%)
  3. The number highlighted in orange is where returns fell for the 12 months that ended as of March 31st, 2013

Even with the strong returns, as of recently, most indexes are still hovering near “middle of the road” returns for the past 12 months.  So perhaps it hasn’t been too much too quickly.

If you are seeking some advice on an appropriate strategy for your portfolio, put the odds in your favor and contact your Financial Planner today!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Links are being provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

My Meetings with Some of Our Portfolio Managers and Their Teams

 Over the last 22 years I have come to realize on many occasions that we are not in the numbers business but in the people business.  Clients like to know that we understand their investments, and more importantly, the people behind the investments.  While numbers are crucial and we spend a lot of time in the depths of many calculations, I find the most value when I get to understand the people behind the numbers. 

Recently, I met with many of the managers from the PIMCO family of funds.  PIMCO has been a long time resource, providing portfolio management services for the funds of Center clients for over a decade. I alone have made this trip 3 times in the last 10 years while others from the Center have also made the trip. These onsite visits take time, usually a day of travel to their offices and back and many hours of sitting, talking and listening to their strategies, philosophies and themes.  I listen to their logic, really  like to see that passion that drives them to succeed for Center clients.

I joke with our investment department about passion, “The managers we want jump out of bed like a piece of toast in the morning to get to work.”  These managers could retire but they would prefer to manage money rather than golf.  I always find these meetings with our managers as worthy time spent.  I have come back from meetings with conviction in people and their teams we have in place and sometimes found that we need to look elsewhere for a replacement.

Some things can’t be discerned in the numbers alone.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The 3 Missing Bull Market Killers

 Every day I get questions from clients regarding the market being high.  Yes, the market’s nominal price is at an all-time high.  But consider the following situation: Over 20 years, with an average annual gain of 9% per year, the equity market could be looking at a DOW JONES average in the 80,000 range.  Twenty years ago the Dow Jones was hovering around 3,500 and since then we have had a 12 year period when the Dow did not make a new high, but still averaged almost 9% a year.   

The three things that tend to kill a bull market are inflation, interest rates, and valuations, and none of them are present yet.

A Look at Inflation

Notice that we are tracking at one of the lowest rates in history. You’ll see the Consumer price Index is well below the 10-year average. Just compare the difference between the price level of consumer goods and services in 2013 and in early 1980’s:

Sources: Bloomberg and Legg Mason. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Individual investor’s results will vary. The graph above is for illustrative purposes only and is not reflective an actual investment.

I don’t think I would be the first to remind you that interest rates are still at the lowest levels in history. This chart tracks interest rates and inflation as both trended down in recent years.

Interest Rates and Inflation

And when looking at the final potential bull killer, equity valuations, you’ll see the measures are in line with historical averages.  Not expensive and not cheap.

Equity Valuations

History as our guide would tell us that until all three or at least one of the bull market killers are present this bull is still alive and well.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  The Dow Jones Industrial Average (DJIA) is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.

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Got Savings Bonds?

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 Ahhh….savings bonds.  Throughout the years, savings bonds have been popular gifts. Grandma and grandpa have given their grandchildren savings bonds for birthdays to encourage saving for the future.  They were easily available savings vehicles that you could purchase at your local bank or, in some instances, through payroll deduction.  The paper certificates are those you might stumble across in a stack of old papers or locked away in your safety deposit box. 

What do you do if you find that you have savings bond certificates?

  • Check the dates.  All savings bonds have a maturity date; a date at which they stop accruing interest (i.e. Series EE bonds accrue interest for 30 years).  You can use any number of online savings bond calculators to find out if your bonds have matured.
  • Transition to Electronic Bonds.  The U.S. Treasury recently stopped issuing paper bonds to save costs.  If you own paper bonds that are still accruing interest, consider establishing a Treasury Direct account to convert your paper bonds to electronic bonds.  This helps eliminate the risk of loss or damage to the physical bond certificates.  If/when your bonds have matured, you can cash them in and have the proceeds deposited to your bank through Treasury Direct.
  • Check the registration on the bonds.  Savings bonds seem to be easily forgotten.  It is not uncommon for a client to find a bond in the name a deceased relative, in a former/maiden name, or in custodial registration for a child who is now a well-established adult.  Updating the registration on active savings bonds now can prevent headaches later.  Registration changes can be handled through Treasury Direct.
  • Last but not least, document that you own savings bonds.  List these holdings with your financial planner and on your Personal Record Keeping Document to ensure that these assets are not forgotten if something happens to you.

While savings bonds are not as en vogue today as they were in past decades, they can still be valuable assets.  It is worth taking the time to bring the old bonds into the current century with Treasury Direct.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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