Category Archives: Investing Money

3 Actions for Worried Investors

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‘Is the stock market a bubble ready to burst? No,’ say BlackRock’s investment strategists in a spring update

question-markMy Comments: All of us are looking for an edge, an insight, a clue to help us make what we hope are smart decisions about our money. These comments from someone clearly ahead of the curve that I live on may be helpful to you. The fact that Blackrock manages over $3.7T (that “T” means trillion!) suggests they know what they are talking about.

Here at Florida Wealth Advisors, we can help you interpret and implement these ideas.

By Joyce Hanson, AdvisorOne | April 15, 2013

The stock market has powered ahead of the nation’s faltering economy so far in 2013 at the same time that the Federal Reserve keeps supporting U.S. Treasuries by keeping interest rates low.

These seemingly contrary events have left investors so uncertain about what will happen next that BlackRock, the world’s largest asset manager, with $3.79 trillion under management as of Dec. 31, stepped forward Friday to offer three actions for worried investors to take.

Russ Koesterich, BlackRock chief investment strategist and iShares chief global strategist“The powerful advance of U.S. stock markets has investors asking: Do the markets have more room to run, or is a correction imminent? First, we think there is almost no chance that the pace seen in the first quarter will continue. But does that mean we’re in the middle of a bubble that will burst? The answer is no,” write Russ Koesterich (left), BlackRock chief investment strategist and iShares chief global strategist, Jeffrey Rosenberg, chief investment strategist for fixed income, and Peter Hayes, head of the municipal bonds group.

As for interest rates, Koesterich, Rosenberg and Hayes predict that rates will drift higher, but slowly and erratically.

“A number of forces are keeping a lid on interest rates, including the low net supply of fixed-income securities (due largely to Fed buying) and a strong demand among investors for yielding assets. The Federal Reserve will not reduce its pace of accommodation any time soon given still-elevated unemployment. However, stronger economic growth could lead the central bank to pull back on the pace of accommodation later this year, they write in “What’s Next in 2013? 3 Investment Actions for 2013.”

The BlackRock strategists recommend three smart ways for investors to achieve income and return this year:

1) Broaden your bond approach. “Investor demand has pushed interest rates to such lows that it presents new risks,” the BlackRock team says. They recommend that investors allocate to flexible core bond alternatives, increase exposure to credit sectors and implement long/short strategies.

Interest rates should gradually drift higher through the end of the year, with the 10-year Treasury yield ending around 2.25%, they predict. And if the Fed begins to slow down quantitative easing, yields on longer-maturity fixed-income assets such as the 10-year and the 30-year would move modestly higher as prices fall.

“In this environment, we advise protecting portfolios from the effects of increasing interest rates,” the team writes. “One way to do this would be to focus on shorter-maturity segments of the market. Additionally, we continue to suggest a focus on credit sectors of the market, including areas such as bank loans and high-yield bonds.”

2) Find new sources of income. Historically low yields within fixed income are driving investors to cast a wider net for income. The BlackRock team recommends solutions that balance income and risk, investments in nontraditional income sources and allocations to municipal bonds for tax-advantaged income.

The team favors munis particularly due to the prevailing higher-tax environment. “Munis have demonstrated lower volatility than many other areas of the fixed-income market and boast yields that, in many cases, rival Treasuries even before tax,” they write. “They can offer a better way to keep more of what you earn.”

3) Grow your wealth in unpredictable markets. “Equities remain attractive and should be the foundation for meaningful long-term growth,” write Koesterich, Rosenberg and Hayes. “However, mitigating volatility is critical.” The BlackRock team recommends allocating to “flexible, unconstrained” strategies, investing in high-quality dividend-paying equities and implementing alternative strategies.

Surprisingly, the BlackRock team was mixed on China’s outlook, saying that while it is on an economic rebound in both manufacturing and exports, “Chinese authorities are tightening credit availability once again, which could dampen growth prospects.”

More broadly in the emerging markets, although they got off to a poor start in 2013, “thanks to cheap valuations as well as higher growth, we still believe they can outperform developed markets for the year,” the BlackRock strategists say.

15 Best Investing Quotes of All Time

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GardeningMy Comments: There are successful investors, and there are unsuccessful investors. Some of them are the same people.

I ran across this list and realized there are nuggets here that my clients and prospective clients might find helpful. We live in an increasingly complex world so finding short, sweet comments from time to time that attempt to simplify what is otherwise a confusing matrix is valuable. Enjoy.

By Ron Pechtimaldjian, AdvisorOne | April 18, 2013

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett

“The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Phillip Fisher

“An investment in knowledge pays the best interest.” – Benjamin Franklin

“In investing, what is comfortable is rarely profitable.” – Robert Arnott

“Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

“Every once in a while, the market does something so stupid it takes your breath away.” – Jim Cramer

“Invest in yourself. Your career is the engine of your wealth.” – Paul Clitheroe

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson

“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” – Dave Ramsey

“Know what you own, and know why you own it.”– Peter Lynch

“The four most dangerous words in investing are: ‘this time it’s different.’” – John Templeton

“Wide diversification is only required when investors do not understand what they are doing.” – Warren Buffett

“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – John Bogle

The Cycle of Market Psychology

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My Comments: It seems the DOW hits a new record every week and everyone is wondering when the penny is going to drop and once again, we fall into the abyss. Most of us think it will happen, but not anytime soon. Here’s another analysis worth reading.

By Jeffrey Dow Jones

This week (April 8) kicks off earnings season in the market. Even though we go through it four times a year, it’s a time when investors should be paying extra attention.

Earnings are important because ultimately, fundamentals are the only thing that matter. When you get down to it, a share of stock is worth nothing more than the future stream of cash flows that it will generate. During the tech bubble it became fashionable to ignore earnings altogether because there weren’t any. Someday, everybody said, the earnings would be HUGE!

So let me revise that: earnings aren’t the only thing that matter.

There is also psychology.

The way that psychology factors into the market is that investors are willing to pay different prices today for earnings in the future. When they’re feeling really great, they’re willing to pay a lot for $1 of earnings. When they’re scared or pessimistic, they aren’t willing to pay much for that $1.

You’d think that psychology would be a difficult thing to measure quantitatively, but it really isn’t. You simply look at the price-to-earnings ratio. That will tell you exactly how much investors are willing to pay for that dollar of earnings, and when you relate that to historical P/E ratios, you can get a pretty good sense about the psychology of the current market.

We talked a bit about this last week, but some of this is worth repeating. In particular, there are two images you really need to make sure you understand. Here is the first:

This is a list of one-directional markets i.e. bull markets without any kind of significant correction or cyclical bear market. All of them eventually ended with a nasty down move. Nothing goes up forever, of course. But as you can see, some ran longer than others.

This table does something really cool. It isolates the degree to which each of these moves was driven by change in sentiment. The rallies at the top of the table were driven more by fundamentals. The ones at the bottom were driven more by multiple expansion.

Of the greatest, continual bull markets in history, you can see that the one we’re currently in is largely due to improving sentiment. In other words, earnings have improved in recent years, just not a lot relative to historical earnings. You can see now why today’s environment is such a marvelous puzzle for market historians.

That’s all handy to know. But what you really care about is the column on the far right, the one called “subsequent bear market loss.” When you look at it, you’ll notice a disturbing trend: the more the market was driven by sentiment, the bigger to subsequent correction was.

There aren’t a ton of data points on here, but the basic idea underpinning this whole study is solid. Markets can only get so cheap before smart investors step in and say, “OK, enough is enough, y’all are crazy.” When a large portion of the rally is fueled by legitimate economic growth, stock prices have a much bigger cushion under them than when the rally is driven by sentiment.

This brings us to the next image you need to sear into your temporal lobe.
Continue Reading HERE...

The Disclosure Paradox: How Much Information Is Too Much?

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Too much information can be as harmful to retirement plan decisions as too little.

investment choicesMy Comments: Somewhere along the way during my last 40 years in the world of financial services, I read or was told that at some point you have to make a decision. You cannot simply attempt to absorb more and more information and expect to suddenly have a revelation about what to do. And many of us have heard the comment that says “paralysis by analysis.”

I’ve had clients who second guess every single decision made by their investment professionals who live and breathe this stuff 24/7, have lots of staff and mountains of computers and who live and work in New York. How someone in Trenton can expect to replicate their skills is beyond me. But it happens. Typically not for long however as I gently suggest they find a new advisor.

By the way, how many of you have read a mutual fund prospectus from cover to cover? This is what I do for a living, but I’ve never done it. But every client has to acknowledge receipt of such a document, since that implies you have read it cover to cover and your remedies if something goes wrong become severely limited.

By Michael Finke | April 1, 2013

The defined contribution revolution saw employers shift responsibility for funding retirement to employees who weren’t well equipped to become their own pension manager. One easy solution would seem to be information. Give people the right tools and they’ll be better able to select the right investments, the right advisors, and save the right amount of money. But is more information the key to improving retirement security?

New research provides insight into the promise and perils of disclosure as a policy tool. At its worst, disclosure is a waste of time and resources, draining millions of dollars from the financial services industry and achieving few measurable improvements in investor outcomes. At its best, disclosure can instantly achieve efficiency improvements within markets where it’s difficult for investors to assess price or quality.

KNOWLEDGE LIMITS
First, some basic consumer theory. Investors make the best decisions they can but are limited by their knowledge.

Collecting knowledge can be costly. A new employee must select among numerous investment options by reading through fund prospectuses or looking for cues of growth. Most people have made investments in learning a work-related skill in order to earn a living, but they haven’t made an investment in how to be their own pension manager. But creating 300 million pension managers doesn’t sound like a sensible public policy goal.

One way to help workers is to give them the information they need to make better choices. This is the appeal of information policy. If ignorance is the problem, then give them a detailed brochure that contains everything they’d need to know to make a better choice. Unfortunately, consumers may have no idea what to do with this information. And more information makes the problem worse.

There is perhaps no sadder example of failed information policy than the mutual fund prospectus. At an SEC roundtable, Don Phillips, Morningstar’s president of investment research, said that fund prospectuses were “bombarding investors with way more information than they can handle and that they can intelligently assimilate.” To its credit, the SEC tried to streamline the fund prospectus to only the most important information. Unfortunately, research shows that investors given a simplified prospectus still focus the most on fund characteristics that are irrelevant (like past performance) and ignore characteristics that matter (like fees).

Disclosure can even be counterproductive. In a 2011 paper, Sunita Sah, then at Duke University, and George Loewenstein of Carnegie Mellon University found that advisors were more likely to give self-serving advice if they first disclosed a conflict of interest to their client. When an advisor admits to a conflict of interest in a face-to-face transaction, this creates two problems. First, the client now feels that if they don’t accept the recommendation they are admitting they don’t trust the advisor—something that is taboo in human interactions.

The second problem is that the advisor now feels less pressure to make a recommendation that isn’t self-serving. It is as if one can absolve one’s sins by admitting to being a sinner. The authors found that recommendations given by participants in the role of advisor were significantly worse for the consumer if they had to disclose conflicts of interest.

Source: http://www.advisorone.com/2013/04/01/the-disclosure-paradox-how-much-information-is-too?utm_source=dailywire40113&utm_medium=enewsletter&utm_campaign=dailywire

Record U.S. Stocks at Lowest Valuation Since 1980

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USA EconomyMy Comments: Many of my clients are elderly clients. For many, their investment horizon going forward is not 20 years or more. They have little need to take what many of them think of as aggressive steps to grow their money.

On the other hand, good advisors today are encouraging their clients to be more aggressive. There is a pervasive and collective sense that the next 12 to 24 months are going to be very positive months for the stock market. Not that there might not be a 4% correction or two along the way, but nothing that suggests anything like what we saw in 2008-2009.

So this article is yet another that if you believe the world is NOT coming to an end anytime soon, you should put some of your money to work in the stock market. Call me, I have a good solution.

Source: http://www.investmentnews.com/article/20130324/REG/303249997

Even though U.S. stocks more than doubled during the four-year bull market, individual investors’ aversion to equities has left companies in the S&P 500 cheaper than at any record high since 1980.

The S&P 500 rose to an all-time closing high of 1,563.23 March 14, up more than 130% from its 2009 lows.

The index trades at 15.4 times reported profit, below the average 19.9 reached in bull markets since 1962, according to data compiled by Bloomberg.

The Dow Jones Industrial Average erased all losses from the financial crisis March 5 and has gained about 11% this year.

Although individuals have added almost $20 billion to U.S. stock funds so far this year, the amount is just 3.5% of the withdrawals since 2007 and compares with $44 billion placed with fixed-income managers in 2013, according to the Investment Company Institute.

For bulls, the absence of private buyers shows that there is plenty of money to keep the rally going.
Bears contend that the pessimism means the rally is too dependent on Federal Reserve stimulus and will fizzle once central bank support ebbs.

“I was down on the floor of the New York Stock Exchange when the Dow hit its new high, and there weren’t any champagne corks popping or people getting excited,” Michael Holland, chairman and founder of Holland & Co., said March 14.

“Valuations are extremely low. When there’s an absence of really bad news, the path of least resistance is up,” said Mr. Holland, whose firm oversees more than $4 billion.

REACHING RECORDS
The S&P 500 has risen about 9% this year. The Dow industrials were trading above 14,530.11 last Wednesday.
In March, the number of Americans filing for jobless benefits fell to the lowest level in almost two months, retail sales increased more than forecast and the housing market strengthened.

Indexes did give back a bit last week as the euro area imposed a levy on Cypriot bank deposits to reduce the cost of rescuing the nation’s lenders.

About $10 trillion has been added to U.S. share values since the market bottomed on March 9, 2009, during the worst financial crisis in seven decades. Confidence among households was shattered by the S&P 500′s 57% plunge from its October 2007 highs.

Institutions have been the main beneficiaries of the rally.

Individuals drained more than $600 billion from equity mutual funds in the six-year period though 2012 before becoming net buyers in January, data from the ICI show.

Even now, private investors remain skittish, withdrawing an estimated $1.7 billion in the two-week period through March 6 and pushing $10.5 billion into bonds.

“This big rotation from bonds to equities is not in full swing,” Alan Zlatar, who helps oversee $65 billion as head of multiasset class investments at Vontobel Asset Management Inc., said March 13.

“Our clients are seeking returns, and so far most of them have tried to stay within the bond space,” he said. “What speaks in favor of equities is, of course, that the alternatives are extremely pricey.”

Stocks are close to the least expensive ever versus government bonds, as measured by a valuation method favored by former Fed Chairman Alan Greenspan that compares earnings with interest payments.

S&P 500 companies currently generate profit equal to 6.5% of their share prices, about 4.5 percentage points more than yields on 10-year Treasuries.

The average spread in the past 10 years was about 2.5 percentage points, data compiled by Bloomberg show.

The combination of stocks being near all-time highs and declining trading volume indicates that money isn’t coming into the market and that equities are rising because fewer people are selling, according to Murray Roos, co-head of European equities at Deutsche Bank AG.

On average, 2.53 billion shares changed hands in S&P 500 companies each day this year, Bloomberg data show. That compares with 3.59 billion between 2009 and 2012.

“There aren’t sellers. That’s why the equity market is looking fundamentally cheap,” Mr. Roos said.
“We’ve got latent demand for equities,” he said. “We are at the start of a protracted move up in equity markets.”

Clean Electricity from Bacteria? Researchers Make Breakthrough in Race to Create ‘Bio-Batteries’

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My Comments: Why, you ask, do I repost an article that on the face of it has nothing to do with investing money, or financial planning or making sure taxes are minimized.

Well, because many of you are going to be investing money ten, twenty, and thirty years from now. Your lives will change from how things are today, and there will still be some folks whose goal is to take us back to before batteries were invented.

I find all this fascinating, and simply want to share it with as many of you as possible.

Mar. 25, 2013 — Scientists at the University of East Anglia have made an important breakthrough in the quest to generate clean electricity from bacteria.

Findings published today in the journal Proceedings of the National Academy of Sciences (PNAS) show that proteins on the surface of bacteria can produce an electric current by simply touching a mineral surface.

The research shows that it is possible for bacteria to lie directly on the surface of a metal or mineral and transfer electrical charge through their cell membranes. This means that it is possible to ‘tether’ bacteria directly to electrodes — bringing scientists a step closer to creating efficient microbial fuel cells or ‘bio-batteries’.

The team collaborated with researchers at Pacific Northwest National Laboratory in Washington State in the US.

Shewanella oneidensis is part of a family of marine bacteria. The research team created a synthetic version of this bacteria using just the proteins thought to shuttle the electrons from the inside of the microbe to the rock.

They inserted these proteins into the lipid layers of vesicles, which are small capsules of lipid membranes such as the ones that make up a bacterial membrane. Then they tested how well electrons travelled between an electron donor on the inside and an iron-bearing mineral on the outside.

Lead researcher Dr Tom Clarke from UEA’s school of Biological Sciences said: “We knew that bacteria can transfer electricity into metals and minerals, and that the interaction depends on special proteins on the surface of the bacteria. But it was not been clear whether these proteins do this directly or indirectly though an unknown mediator in the environment.

“Our research shows that these proteins can directly ‘touch’ the mineral surface and produce an electric current, meaning that is possible for the bacteria to lie on the surface of a metal or mineral and conduct electricity through their cell membranes.

“This is the first time that we have been able to actually look at how the components of a bacterial cell membrane are able to interact with different substances, and understand how differences in metal and mineral interactions can occur on the surface of a cell.

“These bacteria show great potential as microbial fuel cells, where electricity can be generated from the breakdown of domestic or agricultural waste products.

“Another possibility is to use these bacteria as miniature factories on the surface of an electrode, where chemicals reactions take place inside the cell using electrical power supplied by the electrode through these proteins.”

Biochemist Liang Shi of Pacific Northwest National Laboratory said: “We developed a unique system so we could mimic electron transfer like it happens in cells. The electron transfer rate we measured was unbelievably fast — it was fast enough to support bacterial respiration.”

The finding is also important for understanding how carbon works its way through the atmosphere, land and oceans.
“When organic matter is involved in reducing iron, it releases carbon dioxide and water. And when iron is used as an energy source, bacteria incorporate carbon dioxide into food. If we understand electron transfer, we can learn how bacteria controls the carbon cycle,” said Shi.

The project was funded by the Biotechnology and Biological Sciences Research Council (BBSRC) and the US Department of Energy.

Why Emerging Markets? Growth, Demographics and Yield

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global econMy Comments: In the early 90’s, I opened a branch here in Gainesville for a company called International Assets Advisor Corporation. This company, headquartered in Winter Park, FL was a leading proponent of having clients invested in markets beyond the US. It was a rather revolutionary idea at the time.

The lead broker on the trading desk kept computer screens aglow with data from London, Hong Kong, Zurich, and Tokyo, among others. He would be there at 4 in the morning, talking with someone in Zurich to see how their day had started, and late into the night talking with folks in Hong Kong or Sydney, to see how their day began. He would routinely make 20% per MONTH on his accounts, just buying and selling the same position, taking advantage of discrepancies in the currency prices.

At our regular monthly meetings, we would hear about what was going on around the world and how those markets were reacting to various economic forces and how we could help our clients make money. It was fascinating and what we could offer our clients, the big brokerage firms could only dream about.

Today, with the advances in technology, and an acceptance that markets are viable in many places across the planet, and the fact that funds and ETFs exist to take advantage of all the opportunities, emerging markets are just another blip on the screen.

But those markets have been impacted by the Great Recession, and opportunities exist for the clever and the brave. This will help you understand why.

By Marlene Y. Satter | March 19, 2013

While diversification was the first thing that steered the wealth management firm Balasa Dinverno Foltz to international investing, according to Chad Carlson, there are plenty of other reasons to look to other countries for investing opportunities, both in bonds and in stocks.

Both Carlson and Itasca, IL-based Balasa Dinverno Foltz have “been around the block on international investing.” Balasa has looked abroad for opportunities since 1986, and Carlson’s experience in the sector spans a decade. A third of the firm’s portfolios are targeted toward foreign holdings, he said, “with a purposeful overweight to emerging markets.”

Regarding bonds, “we have recently chosen to increase our international positioning to get exposure to different interest rate environments in order to help us navigate the changing bond market dynamics,” he said.

What’s so attractive about emerging markets? They’re a study in contrasts when compared to developed markets.

“The developed world—the U.S., Europe, Japan—are struggling to find some growth,” said Carlson. Emerging markets may log growth of 4% to 5%, whereas developed markets are lucky at present to grow by 1% to 2%.
Another reason is demographics. “The developed market demographics are of an aging market,” Carlson said, which is “scary.” Emerging markets are “working-age markets,” versus “retired” markets. “Emerging markets have a lot more going for them, and don’t have the burdens of Social Security and Medicare in place to slow growth,” he said.

“We look at all that stuff, but how we chose to implement [our investment strategy] is through broader baskets of diversified products,” Carlson said. He singles out Mexico as having “a lot of good things going on there,” although he concedes that “emerging markets and frontier markets are pretty risky to pick; there are political [hazards], governments get overthrown, and there are less strict reporting requirements for companies.”

The firm uses index funds and ETFs to take advantage of equity opportunities, as well as an emerging-markets local bond fund that looks likely to provide some currency appreciation opportunities as well. “Emerging market currencies look cheap compared to developed,” he said.

And exposure to currency is what the firm is looking for. “From our perspective on the stock side, being unhedged has made a lot of sense,” Carlson said. “In particular, in emerging markets, you want to be unhedged because of opportunities in currency appreciation.”

Another lure of international debt exposure is that “the Canadas, the Australias have better balance sheets than the U.S.; they don’t look as risky for the amount of debt,” according to Carlson. “We have exposure with those, so that if rates go up on bonds and there’s trouble [within the U.S.], we are pretty sure that they won’t go up globally in sync. Maybe other countries will go up a few years after the U.S.; rates will rise at some point,” he said.

With a third of the firm’s stocks in foreign holdings, and about 20% of its bonds also tied to foreign markets, the firm is satisfied with how things are going. Carlson said that the emerging-markets local bond fund is up almost 16%.

Sectors that the firm favors include last year’s investments in foreign real estate, something that’s gone down quite a bit, said Carlson, adding that it definitely rallied back very strongly across the board returning approximately 33%. There was “very, very strong performance with an international REIT; this year, it’s actually reversing a bit. We added that type of exposure [because] we didn’t want U.S. exposure but wanted real estate for diversification,” he said.

Another sector that seems to make sense long term is the consumer sector. Growing populations that are earning more money buy cars, move into urban areas—emerging market indexes are small and focus on the consumer. In the U.S. the sector makes up 70% of the economy; in China it’s 11% of the economy, he said. “If China moves anywhere toward the U.S., there will be tremendous benefit [in that sector] and funds that look for consumer [sector exposure] are an interesting piece to look for growth,” Carlson said.

While currently the firm’s international exposure hovers at approximately a third, its international investing is going to grow. “It will probably be moving up to 40%; it’s just a matter of time till we do that,” he said.

THE ONLY SAFE WITHDRAWAL RATE

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money mazeMy Comments: For many years than I am aware of, there have been “experts” who have expressed their opinion about the optimum rate to withdraw money from accumulated retirement funds. The reason for this is to offset a fear by many of running out of money at some point before you die. Typically, that’s not a good thing.

One expression of this by me has been that retirement is a transition from working for money to having money work for you. The objectiive is to have as big a pile as possible from which to draw funds to pay for the things you need and the things you want.

The dilemma comes full circle when I ask you “when do you plan to die?” I’ve not yet met anyone who is willing to hazard a guess. So you will likely fall somewhere between running out of money before you die or dieing with enough money in your accounts that, on reflection, you could have spent the last few years in the south of France with side trips to Paris.
Simply put, there is NO best answer, but this article comes close.

By Perry Chesney, CIMA®, CFP®

Over the past several years one of the hottest questions debated among practitioners and clients alike has been: What is a “safe” withdrawal rate in retirement?

Beginning with William Bengen’s 4% prescribed rate, this magic number has been fluctuating – from the managers who argue for a higher rate based on portfolio rules to a recent study concluding that the only sustainable rate is a mere 2.8%. All of these methodologies make capital market assumptions then run through various calculations to demonstrate why if one takes his retirement account value at retirement age, multiplies it by the withdrawal rate to determine a dollar amount of annual spending and inflation adjusts it, the money should last as long as his pulse. While we could debate the rationale behind each of these various theories individually, there is a common factor being overlooked by them all: the lifestyle price of safety.

The premises of Wealthcare are to ensure that clients experience the dreams of their one and only life while avoiding needless investment risk AND lifestyle sacrifice. When considering the issue of identifying a safe withdrawal rate that fulfills our promise of comfort & confidence, we’ve found that the only safe withdrawal rate is a flexible one.

Wealthcare identifies an Ideal & Acceptable range for each aspect of a client’s financial life – saving, spending, retirement age, investment risk and estate goals. Ideal represents their greatest aspirations; acceptable, a lesser but still satisfactory compromise based on the extreme markets that we may face.

This range helps us identify what our clients value while preparing us to deal with both life and market uncertainty. By understanding the priorities amongst competing goals and discussing in advance the tradeoffs they would be willing to make between goals, we’re able to continuously craft life-relevant advice with confidence in funding the future.

When markets misbehave, our choices are not limited to spending rate vs. investment approach. The adjustment of lower priority goals toward their acceptable levels may be enough to keep the plan on track and high priorities intact. Conversely, if markets are favorable, we’re able to make adjustments to buy ideal levels of higher priority goals.

We are alerted when adjustments are needed by measuring the uncertainty of the markets and stress testing each client’s goals set to determine their funded status. We re-evaluate this funded status and revisit the ideal & acceptable ranges and priorities at least quarterly to make sure our advice is current. This complete process allows us to deal with the risks of the things we cannot control while still making the most of each client’s only life.

While controlling risk in order to have confidence of funding future spending goals is a serious issue, many other proposed solutions of the safe withdrawal rate dilemma seem to overlook the certain lifestyle cost that the retiree would have to endure. We believe that at the end of the day, a person’s current life is just as important as their future life.

In our next Educational Webinar, The Lifestyle Price of Hedging Retirement Withdrawal Risks, our CEO, Dave Loeper, will discuss the lifestyle impact of various planning strategies including:
• The Buckets of Money method
• The use of Insurance Products – Immediate and Variable Annuities
• The Safety First approach

All of these methods seek to buy investors’ confidence in a “safe” withdrawal rate by hedging against the constant uncertainties of return sequences and inflation. During this webinar Dave will share his evaluation of the true costs of such hedges. If you’re interested in joining a discussion of investment management and retirement planning strategies from the perspective of your clients’ lives, email us and reserve your spot.

Investable Assets to Hit $80T by 2017

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global investingMy Comments: When I saw this number, I had to reach far into my psyche to actually figure out how many dollars we’re talking about. And I’m someone who follows astronomy blog sites from time to time and am used to thinking in terms of billions of light years. It takes some time to get your arms around these numbers.

Many of these dollars are owned by simple folks such as live in Gainesville. It’s inside our retirement accounts, whether we work at the University of Florida, another employer, or simply have an IRA with a brokerage firm.

I’m passing this on to you as there is an inevitability about investing in the stock market that you have to embrace. If you or or the people close to you have any expectation of being around 20 years from now, you should know that between 1926 and 2010, there was not a single rolling 20-year period – pick the starting point in any month of any year during that eight-decade stretch you’d like – with negative returns for stocks. It hasn’t happened.

By Warren S. Hersch

Tiburon Strategic Advisors, Tiburon, Calif., discloses this finding in a summary of results from in the 2013 edition of Investable Assets: Investable Assets: Dominant Mutual Funds, Growing ETFs, & Everything Else.” The research explores the market for investable assets, including mutual funds, exchange-traded funds, hedge funds and a dozen other investable asset products.

The report reveals that investable assets market firms have gathered $63.1 trillions in assets under management (including $13.1 trillion by mutual fund companies), generating $162 billion in revenues. The AUM figure represents a 30% since 2004, but is down from its peak of $69.4 trillion in 2007.

More than half of U.S. households, the study adds, have money in the stock market. Consumer households have over $5.5 trillion in equities, a decrease of 40% since 2002. Consumers have invested $12.0 trillion of their investable assets & retirement plan assets in equities.

Additionally, consumer households have $1.6 trillion in corporate and foreign bond assets, an increase of 100% since 2002, but a decrease of 10% since 2007

The report observes also that 88 million consumers now own mutual funds and unit investment trusts. The total number of global mutual funds includes 8,105 U.S. mutual funds and 55,095 non-U.S. mutual funds. Mutual funds now earn $45 billion annually, up nearly 40% since 2001.

Among the report’s additional findings:

ETFs and indexing
• U.S. stock mutual funds net flows have been negative since 2007.
• U.S. stock ETF net flows have been positive since 2006, with the exception of 2009.
• The ETFs and indexing product market has gathered $5.1 trillion assets under management, including $3.0 trillion in indexed separate accounts.
• Nearly all ETFs and indexing product assets under management are in indexed separate accounts.
• There are 1,490 exchange traded funds, up from nineteen in 1997.
• Exchange traded funds have gathered $1.3 trillion in assets under management, up from $1.0 billion in 1993.
• Exchange-traded funds have net flows of $185 billion, up 500% since 2001, and above their prior peak of $177 billion in 2008.
Hedge funds
• In aggregate, there are over 16,000 global hedge funds
• In aggregate, global hedge funds assets under management are over $3.0 trillion.
• Hedge funds have one-fifth of the assets under management of mutual funds.
• Hedge fund profits are over $40 billion, including managed futures profits, hedge fund mutual fund profits, and non-U.S. hedge fund profits
• Only 1.5% of U.S. families can invest in hedge funds
• Two-thirds of all hedge funds use equity strategies
Venture capital and private equity
• The number of private equity firms reached almost 620, up by almost 20 in one year.
• Private equity firms now account for a higher share of U.S. mergers and acquisitions activity than corporations, with the share of mergers & acquisitions reaching 13%.
• Mezzanine financing comprised 2.7% or $208 million of the entire venture-backed financing business.
• Private equity in the average pension fund comprises 2.5% of pension fund investments.