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Lauren's Blog

Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

Embracing Imperfection

New Year's resolutions often involve making promises to ourselves we can never keep. But instead of tilting at windmills, we can often generate better results by merely resolving to be less dumb in certain areas. And money is a good place to start…

Embracing Imperfection


New Year's resolutions often involve making promises to ourselves we can never keep. But instead of tilting at windmills, we can often generate better results by merely resolving to be less dumb in certain areas. And money is a good place to start.

One human tendency is to judge the effectiveness of our retirement savings strategies by looking at performances on one-, two-, or three-year horizons. We do this because we are wired to be more sensitive to short-term losses than to long-term gains.

This is why much of the financial services industry and media encourage a short-term focus for an audience with a long-term horizon. This is akin to looking through the wrong end of a telescope. The thing you should be focusing on looks even farther away.

The result of this short-term mindset is that investors end up following the herd and seeking safety when opportunities are plentiful and seeking risk when opportunities are few. The less dumb thing is to maintain a level of discipline amid the noise.

Another human tendency—and one allied to our built-in loss aversion—is to be suckers for the supposedly "free" or discounted offer. Like Homer Simpson, a zero price tag makes us fall for pitches selling us stuff that is neither necessary nor good for us.

In the world of investment, it's this tendency that makes people gravitate to strategies that headline high returns without mentioning the risk, or that conveniently bury fees, commissions, and other costs. Regret lies on the other side of those decisions.

A less dumb thing is to focus on return andrisk. They're related. Focusing exclusively on return can lead to rude awakenings when risk shows up. Focusing exclusively on risk can lead to disappointment when returns are delivered.

A third tendency among humans is to succumb to what behavioural scientists call "hindsight bias." Essentially, this is our habit of viewing events as more predictable than they really were. Call it the "I saw it coming" syndrome.

There is a fair bit of this around at the moment, with plenty of "experts" saying the sovereign risk crisis was completely predictable. This is strange, because as we saw in my previous column "Things Change,"the overwhelming consensus among institutional investors a year ago was that fixed income would underperform in 2011. The crisis may have been predictable, but the market reaction wasn't.

The consequence of hindsight bias for investors is they tend to be forever rewriting history and forever seeking to interpret performance based on what they know nowrather than what they knew a year or more before.

A less dumb thing is to accept there will always be a level of uncertainty. The future is unknowable. And all we can do as investors is to ensure the risks we take are related to an expected return, that we diversify around those risks as much as possible, and that we exercise a level of discipline amid the noise.

It's a way of embracing your imperfection, and it's a New Year's resolution you have a chance of sticking to.

Jim Parker

Vice President, Dimensional Fund Advisors

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New Year, New Life

Spend the holidays WITH yourself, not BY yourself…here are some tips for the newly divorced or separated:

Move your needs to the front burner.Especially if you have children, you may have spent years pushing your needs and dreams to the back burner. Now it's time to take some time for yourself. This doesn't mean becoming completely selfish, or shutting yourself away from others, but it doesmean taking the time to rediscover and follow your bliss. Do at least one thing that matters to you every day.
  1. Let go of the past.It's time to start the next chapter of your life -- and to do that, you need to shut the page on the last one.
  2. Gifts from the heart, not from the mall.You may think you really want that new 50-inch flat screen TV, but the joy of having that will wear off in short order. The most wonderful gifts are totally free: spending time with friends and family, and enjoying your favourite hobby/sport/leisure activity.Give the gift of quality time with you to your children, family, and friends. Give them your full attention, and don't forget to tell them how blessed you feel to have them in your life.
  3. Search for happiness within. If you're still waiting for others to make you happy, you need to cut that out right now! It only works for a very short time, and then you're left more miserable when it stops working (and it always does). If you’re not happy with who you are on the inside -- and if you're not comfortable spending time in your own company -- you won’t be happy in a long-term relationship with anyone else either. Create happiness and stability in your own life before looking to share your life with someone else.
  4. Take a tip from the kids.Dr. Wayne Dyer is the author of No More Holiday Blues: Uplifting Advice for Recapturing the True Spirit of Christmas, Hanukkah, and the New Year, an inspirational little book that offers positive suggestions in a quick-read format. Dr. Dyer says that, as adults, "we've come to believe that the holiday season is really only for children ... thus only children can enjoy the holidays; adults must suffer through them." He contrasts child-like attitudes ("I can't believe it's over already, it seems like it just started") to negative adult attitudes ("Thank God it's over. If it lasted one more day I'd have a nervous breakdown"). Ring any bells? This year, try to recapture some of the joy you experienced as a child during the holidays.
  5. Forgiveness will set you free.You need to find a way to forgive your ex -- and then forgive yourself -- for what went wrong in your marriage. That doesn't mean forgetting the lessons you learned, but it does mean letting go of the bitterness that's poisoning your life. Remember: hatred binds us as mercilessly to its object as does love. So forgive, and free yourself.
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Outlook and Commentary

...on the Market

The sad fact is that markets do not like uncertainty but there is a lot of it in the world today. Continuing concerns include the European sovereign debt crisis, likewise the ongoing one in the federal government (and not a few state and municipal governments) and of course, in American households. Residual real estate challenges, partisan politics, and slowing growth in the Asian economies are also ongoing worries. The federal government, through its central bank, has effectively used monetary policy to maintain low interest rates and keep inflation in check. Lacking, however, is the political will and cooperation needed to effectively use fiscal policy and other much-needed government programs such as infrastructural bank reforms, and those that would support regulatory easing to fast-track projects.

... on the Jobs Conundrum

Fareed Zakaria, an interested observer, has noted in his reports that the key issue for America is jobs. I agree with his concerns. Low work force participation is driving income disparities in the U.S. and setting the stage for political turmoil. Americans are clearly frustrated that their own economic outlook is darkening; witness the recent Occupy Wall Street campaign that is spreading across the country. I encourage you to read his blog in which he calls for President Obama to declare a National Jobs Emergency that would enable a fast track to rebuilding the country’s infrastructure and putting Americans back to work.

...on the Third Quarter

The third quarter of 2011 was a frustrating one for investors and non-investors alike, indeed for almost all Americans. If certain things would happen, then the fourth quarter could potentiallybe demonstrably better. The problem is that there remains a great deal of uncertainty and there are far too many “if this, then that” scenarios. Nevertheless, let’s review the events of the past three months.

  • The growing debt crisis in the Eurozone and the fear of contagion kept U.S. markets lower, probably even more so than a whole host of lackluster domestic economic indicators. Confidence waned on Wall Street and Main Street, and analysts who had begun to second guess the recovery began vocalizing their concern.
  • The U.S. economy crawled forward with occasional flashes of vigor, which were, unfortunately, too few and far between. Take for example, consumer spending, which saw slight rises in July and August of 0.7% and 0.2%, respectively. To some extent, those increases reflected rises in food and energy costs, not necessarily true increases in spending. Americans, in general, held tight to their purse strings, too wary of the future
  • The U.S. unemployment rate remained firmly anchored at 9.1% for the entire quarter, and consumer confidence, as measured by the Conference Board’s report, plunged.
  • Frustration over the ongoing political posturing among Washington’s elected officials was a key driver of the markets’ volatility. After the long cantankerous debate regarding the nation’s debt ceiling, it was inevitable that Standard and Poor’s would downgrade America’s credit rating. And so they did, dropping it a notch from AAA to AA+; S&P also downgraded those federal agencies reliant on the U.S. government, i.e. Fannie Mae and Freddie Mac. While not unexpected, global equity markets took the downgrade badly.
  • President Obama called for bipartisan unity as he introduced the $447 billion American Jobs Act late in the quarter, a program being likened by some to FDR’s New Deal, but the passage of the bill remains in limbo as Republicans are loathe to support a measure that would be funded by tax hikes.
  • Under significant pressure to do something to stimulate the sluggish economy, the Federal Reserve did not haul out QE3 as some analysts had expected, but brought back 1961’s “Operation Twist” strategy of shifting $400 billion into longer-term Treasuries to foster growth. Equity markets didn’t look too kindly on Operation Twist, nor did analysts for that matter, who don’t believe that it will make any significant difference in the long run. 
  • Asian economies, especially China, which is viewed as the driver of global growth, contended with a clear drop in export demand, a result primarily of the world-wide economic slowdown. The silver lining is that slowing global demand could slow down persistent inflation in India and China, seen as a priority by the respective governments.
  • The real estate sector is far from healed, though there was some annualized improvement. Mortgages became cheaper with lower interest rates, but bank lending restrictions are still making it difficult for potential homebuyers, though there are fewer of those as a rule. Home sales are lower, as are home prices and building starts, because the majority of potential homebuyers are bargain hunting and looking for a deal among bank foreclosures.

So, how could things be better? First and foremost, the Eurozone’s policymakers need to have a decisive and truly unified response to the debt crisis there, and they must consider and arrange for an orderly default for Greece. A growing number of world-renowned economists believe that a default is in the cards for Greece, and at this point, the only true salvation for the Greek economy. Second, a strong corporate earnings season with some upside surprises would be nice. Third, markets need to get some clear data


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October 2011

As a Californian, the changing seasons mean shorter days, cooler mornings, and even some rain. I know you Texans are grateful for the recent rain on your parched, burning state—Mother Nature has been kinder. With the long, hot summer behind us, we look forward to Thanksgiving and the holiday season.

Time passes too quickly, I am sure you’ll agree. As I hit the “send” button I today, I head to the airport and will fly to St. Louis to visit Adam and his family. My bridge lessons are keeping me busy with the added bonus of having new “bridge friends” to enjoy.

At this time of year, I urge you to take the time to review your financial plan. Are you on track? Has anything changed that should make you think about shifting your strategy? The year end is also time to put our financial house back in order and to reconsider how to live well, despite the continuing recession (and yes, this is a recession, regardless of what the pundits are calling it). Take a look at the perspectives below (both my own and others') on the state of the market, the jobs conundrum (and Occupy Wall Street), and the third quarter overall.All of these issues continue to affect not only the fiscal state of the world at large, but also the fiscal state of your own household.

Happily, no matter what the financial picture, we know that the key to living well is to get back to basics – take up new hobbies and treasure your friends and families. Enjoy the season and all it has to offer.


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Unimpressed with U.S. deficit reduction plans, S&P delivers on its warning.

You are probably asking: What happened this week? What is Klein Financial Advisors planning to do? And what, if anything do I need to do? The fight or flight animal in all of us wants to react. Remember that panic is not a strategy.  

Unprecedented and unsettling. Standard & Poor’s issued a historic downgrade of U.S. debt on August 5, sensibly waiting until the market week had concluded to send a shock wave toward global investors. It reduced America’s long-term debt rating – which had been AAA since 1941 – to AA+.

S&P felt Congress did too little too late. The credit rating agency had threatened the downgrade if Congress passed any deficit reduction plan smaller than $4 trillion in scope. The Budget Control Act of 2011 “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” an S&P statement noted. It also retained its “negative” credit outlook on the U.S.

S&P is also skeptical that the federal government can collect more money from taxpayers. Its analysts do not think the Bush-era tax cuts will sunset at the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

The other ratings agencies – Fitch and Moody’s have not downgraded the United States. Fitch has said a downgrade remains a possibility. Moody’s “thought a downgrade would be premature given that they [Congress] have come up with a plan for deficit reduction. Analysts are monitoring to see if lawmakers are able to agree on $1.5 trillion in further cuts.

China’s comments. The world’s largest holder of U.S. debt issued a withering critique of Congress through Xinhua, its official news agency. The state commentary stressed that the U.S. has a “debt addiction” only curable via major cuts to defense spending and entitlement programs. It also said that the option of a “new, stable and secured global reserve currency” should be explored.

The Treasury’s claim.Friday evening, the Treasury argued that S&P’s analysis contained an accounting error that unnecessarily added $2 trillion to its projection of U.S. debt. S&P admitted the error but stuck with the downgrade.

So what happens now?The markets that were open over the weekend, including Israel, have been volatile and nervous. The Asian markets that opened this morning with declines. The initial global response aside, analysts are divided as to what the short-term impact might be for the American economy. Could it cripple the recovery, or just prove inconvenient to it?

Demand was big for Treasury notes even before the threatened downgrade and Treasuries still symbolize comparative safety to institutional investors, so an August selloff might be short-lived. If this turns out to be the case, the effect on interest rates might be less significant than feared.

Could the Fed launch QE3*?The possibility exists, particularly if foreign investors ditch dollar assets. The Fed’s Open Market Committee will make an announcement on August 9, and few analysts expect another wave of bond buying – but it is an option.

When might the U.S. recapture its AAA rating?It might take years for that to happen. S&P has cited political gridlock on Capitol Hill as a major reason for the downgrade, and it doesn’t see that going away in upcoming months. On top of that, the U.S. economy expanded just 1.3% in the first half of 2011 - about half the pace needed to dispel the lingering effects of recession.

Wall Street might sail through this.Does that sound far-fetched? Look at some historical examples. S&P downgraded Canada’s AAA credit rating in the spring of 1993, yet Canadian stocks gained 15% in 1994 and our northern neighbor had its AAA rating back by 1997. Moody’s Investors Service downgraded Japan in November 1998 and its stock market advanced more than 25% in the next 12 months. Italy, Canada, Ireland, Japan, Belgium and Spain have all suffered S&P downgrades from AAA, and most of these cuts had little sustained impact on government bond yields.

What’s our outlook?Whatever happens in Congress, in Europe and in the daily market activity, Klein Financial Advisors will act prudently with your long term financial security in mind. Still feeling jittery? This may be a good time to revisit your risk profile – your ability, need and willingness to accept risk – and consider updating your investment policy.

Don’t hesitate to call to discuss your personal financial security.

And yes…stay confident and stay the course….especially on days like this.


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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >