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Climate, weather, and your money

Climate, weather, and your money

If, like I do, you happen to live—or at least spend time—in Southern California, you know that there are two topics on everyone’s lips at the moment: Donald Trump, and the torrential rain. Depending on who you happen to be talking to at the moment, either topic is sure to elicit one of two responses: optimism… or sheer panic. In both cases, taking a look at the differences between climate and weather can help quell the storm.

Here in Southern California, we live in a desert. Despite our earnest efforts to pretend we live in a climate that can support lush lawns and the greenest gardens, our Mediterranean climate is dry in the summer, nearly every summer. Our winters can be wet, but not always. And while shifts in the atmosphere may bring short-term changes to the weather, our physical location on the planet is what drives our climate—which, if it changes at all, changes extremely slowly over thousands of years. (To be clear, I do believe we humans play a critical role in climate change, and that it is changing, just not as quickly as the weather!) The recent rains have lessened the severity of our five-year drought, but because of our climate, there will always be a shortage of water. To survive, we will always need to plan for that reality.

The same is true when it comes to investing. Bull markets and bear markets battle it out based on changes in the economic weather, but our climate, which is rooted in capitalism, remains steady. The markets are always (always!) rising, which is why investors wisely choose to place their money on Wall Street rather than tucking their hard-earned dollars under the mattress each month. History shows us that the climate for investors in the US is favorable, and that reality doesn’t change, regardless of the current weather pattern.

I had lunch with Maggie this weekend. In her 90s, she still has substantial assets, but for obvious reasons, we’ve allocated a meaningful part of her portfolio to bonds. While she understands that that bonds provide stability in her portfolio, Maggie can’t help but wish her portfolio was busy taking even more advantage of the recent surge in equities. Instead of mirroring the DOW’s 16.6% increase since November 1, she’s watched her portfolio fall by 1% in the same time period. It’s not much of a drop, but when the headlines are filled with record-breaking highs in the equities space, it’s hard to sit on the sidelines. She’s never doubted our plan, but looking up from her coffee, she asked timidly, “Should we change course?”

I replied without an ounce of hesitation. “We shouldn’t change a thing.” As I said to Maggie, and what I believe with absolute certainty, is that while the weather has shifted, the climate remains the same.

You don’t need to take my word for it. Warren Buffett just published his always-anticipated Berkshire Hathaway (BRK.A, BRK.B) shareholder letter (you can read the full 29-page missive here). As usual, his thoughts are straight to the point, as well as pointed, and even humorous. This excerpt reiterates my thinking well:

“Early Americans… were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it. This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”

He goes on to say this:

“American business—and consequently a basket of stocks—is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that… During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Maggie isn’t the first person to ask me if it makes sense to steer in a new direction in light of the recent market weather. After all, the current bull market is already well past the average length of a typical bull market. But so is California’s rainfall for the year. Is the market overheating? No one knows for sure. Not even Warren Buffett. What we do know is that the weather is unusual. But though we may want to break out an umbrella every now and then, the climate itself hasn’t changed. Only the weather has shifted. That’s true when looking at the White House as well, which can impact the forecast for the economy and, ultimately, the market. Heed Warren Buffett’s words and trust that “our nation’s wealth remains intact” and “As Gertrude Stein put it, “Money is always there, but the pockets change.”” The key is to continue to make wise, rational investment decisions to help ensure the money in your own pockets stays where it belongs—even during the fiercest of storms.

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How to Win Big in Retirement (and Life)

How to Win Big in Retirement (and Life)

Picture this: a group of a dozen women and men; most are retired or semi-retired, diving together for seven full days in a tropical paradise. Every person in this “older crowd” is not only healthy enough to get themselves to the Gulf of Mexico to enjoy an activity they love, but they’ve also achieved a level of financial security that, while it may not have them swimming in money, at least has them swimming with the fish. No matter what challenges they have faced in the past, these are people who are truly succeeding at retirement.

How did they achieve the Holy Grail and “win big” in retirement? That’s what I found myself asking as I enjoyed my days with this great group in Cozumel last week. As a financial advisor, this type of winning is my goal for all of my clients, and I wanted to understand how this group had gotten where they are today. So I listened to their stories.

My friend Chantal (my travel companion and dive buddy for this trip) told me that, for her, “retirement is freedom.” After years or hard work, she wanted to be free to enjoy life on her terms. To make it happen, she decided to retire but to continue to do some part-time work as an expert witness (she has a Ph.D. in Pharmacology). The rest of her time is her own. Chantal looks at the world as an opportunity, and even when things go a bit sideways, she has a way of always looking at the sunny side of the situation. (It’s no wonder I love having her by my side as a fellow traveler!)

When Ken, our travel leader in Cozumel, was ready to leave the corporate world, he started thinking about what would make him happiest. He had been the leader of his dive club for years, and diving was and is his passion. He decided to semi-retire and turn his passion into a business. Channel Island Dive Adventures was born, and Ken (and all the rest of us) couldn’t be happier!

Chantal, Ken, and others I chatted with on the trip have something other than diving in common. (While it may sound like an easy fix, I don’t think diving is the key to a successful retirement!) Interestingly, what they share seemed to jump straight from the pages of the book I was reading during the trip: How to Fail at Almost Everything and Still Win Big (Kind of the Story of my Life) by Dilbert cartoonist Scott Adams. This semi-memoir isn’t a great piece of literature, but it’s a fun, inspiring read, and it drove home everything I was seeing and hearing during my weeklong adventure. What I realized is that nearly everyone in our group followed what Adams lays out as his steps for “winning big.” They worked for Adams, who opened—and soon closed—two restaurants, was fired from multiple jobs, and who managed to leverage his failures into fame and fortune as a successful cartoonist. And they worked for my fellow divers, all of whom seem to be living their retirement dreams—on their terms. Here are the three common keys to success: 

  1. Make fitness and sleep a priority. No matter how much money we have to spend in retirement, none of that will do any good unless we’re healthy enough to enjoy life! Keep your body moving. Walk. Do yoga. Lift weights. Do whatever you can to keep your body fit and active. And while there are never enough hours in the day, most people need to spend about 8 hours sleeping to function at their best. According to this article in AgingCare.com by the National Institutes of Health (NIH), “older adults need about the same amount of sleep as younger adults—seven to nine hours of sleep per night.” Not getting enough? The article also offers tips to help make it happen.
     
  2. Reduce stress. Easier said than done, I know, but the impacts of stress on your body and your mind are many. It’s one reason I began a dedicated meditation routine last year. And while there are many approaches to help reduce stress, remember that stress is caused by the things you don’t do. Take care of the things that increase your stress levels first.
     
  3. Have a positive attitude. Scott Adams’ stories about his life are great examples of turning lemons into lemonade. Corny as it is, that kind of positive attitude can change how you see the world—and how the world sees you in return. According to this great article in the Huffington Post, “positive thinking” is no longer a fluffy term that is easy to dismiss. In fact, research shows that “positive thoughts can create real value in your life and help you build skills that last much longer than a smile.”

How can you win big in retirement? Start with these three steps. Of course, getting your financial ducks in a row is also key. Work with an advisor you trust, and be sure to look at every aspect of your financial life—including your retirement goals. Stress really is caused by the things you don’t do. By planning well for your future, you can reduce stress, increase happiness and, indeed, win big in retirement. 

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Caveat Emptor: It’s your money. It’s your responsibility.

Caveat Emptor: It’s your money. It’s your responsibility.

When Linda and Bill came into my office, I could sense their hesitancy right away. And when they told me their story, I could understand why they were so apprehensive about meeting with a financial advisor. They had, quite simply, learned not to trust.

Like many people, they’d realized they needed to stop being “do-it-yourselfers” and begin working with a financial professional. What they didn’t know was how to find a good advisor whose advice was based on their needs—not the advisor’s pockets. Unfortunately, it took them many years to understand the difference. “When I retired, our advisor gave me all the reasons why I should roll over my retirement savings into an IRA, and it seemed like a good idea,” said Linda. “But what I didn’t understand was that it was probably more of a good idea for him than for me.” That understanding came when a friend pointed out the fees she’d paid—and how much her advisor had earned in commissions from the transaction. Linda handed me the article her friend had shared with her that called out the practice of advisors receiving big perks (“say, a six-day, five-night resort vacation in Maui”) for selling a particular product. Ouch. Then Bill chimed in: “When I was 68 and had been collecting Social Security for two years already, someone told me I should have waited to claim until I was 70…that it would have added 30% to my monthly check,” he said. “When I asked our advisor why he hadn’t advised me on this, he said I’d never asked. I hadn’t, but I didn’t know what I didn’t know!”

The conversation got me thinking: with news about Trump signing an executive order delaying the DOL Fiduciary Rule—and even potentially doing away with the Dodd-Frank Wall Street Reform and Consumer Protection Act, investors need more education than ever. And if these regulations do fall away in the wake of the new administration, caveat emptor—or “let the buyer beware”—should be the phrase on everyone’s lips, and it should be driving every financial decision you make, from how and where to invest your hard-earned savings to whom you choose to work with to help guide your financial decisions.

The good news for consumers is that many of the anticipated benefits of the DOL Fiduciary Rule have already taken root. The media attention on the rule brought the idea of “fiduciary responsibility” into the mainstream, shining light on the difference between a fiduciary who is legally bound to act in the best interest of his or her client and ensure no conflict of interest, and a non-fiduciary advisor who is typically compensated by commission and is held only to a suitability obligation. (For more on this topic, see my blog When did it become ok to be financially illiterate?) But even with that knowledge, how do you choose an advisor who is not only working in your best interest, but is also a good fit for you?

The first step is to do your research. Get referrals from investors and other financial professionals, and be sure the advisor is a fiduciary who is, indeed, working in your best interest. When you meet face to face, here are five questions to ask to help you get the information you need to make a smart, informed choice:

  • What are your credentials? The most trusted in the industry are Certified Financial Planner® (CFP®), Personal Financial Specialist (CPA/PFS), and Chartered Financial Consultant (ChFC). This article talks about the benefits of each.
     
  • How are you compensated? Fee-only advisors minimize conflict of interest by receiving compensation only from the client. Fee-only advisors receive no commissions or other perks for the products they recommend. Other compensation models include fee-based, which is a combination of fees and commissions, and commissions only. If the advisor does earn commissions, ask if they come from product sales, from securities trading, or both, as well as specifically how much that commission is. (Yes, it’s okay to ask!)
     
  • May I see your ADV? Every Registered Investment Advisor is required to file a Form ADV with the SEC. The ADV outlines the details of the practice, including compensation, experience, service offerings, and any disciplinary history. Consider the ADV your advisor’s resume.
     
  • What services do you offer? Know what you want and, even more importantly, what you need. Investment management may be at the top of your list, but what about financial and retirement planning? Do you need a Social Security claiming strategy? Do you have the right type of insurance and the right level of coverage? What about estate planning? Understand what your advisor offers and if she has a network of trusted professionals to support the needs she doesn’t provide in-house.
     
  • How can you help me simplify and improve my personal finances? Like Linda and Bill, you may not know what you don’t know. This question can help you uncover unexpected ways the advisor can help you make changes that can lead to greater financial confidence and a better long-term financial outlook. After all, your financial success—today and far into the future—is the ultimate goal.

In our own Investment Policy Statement (and no matter who you choose to work with, be sure you receive and review this contract carefully!), we break down the roles and responsibilities of the three key partners in the road to financial wellness: the custodian (whose job it is to hold and protect your assets), the advisor (whose job it is to design and implement a financial and investment plan based on your needs and goals, and to regularly monitor the performance of that plan), and the investor—that’s you!—who has three key responsibilities: 1) to oversee your advisor, 2) to understand what you want to achieve and communicate those goals to your advisor even as they change over time, and 3) to carefully review your statements and be sure you understand how your money is being invested, how you are being charged, and if your plan is fulfilling your needs. If you’re clear about those roles and responsibilities and do your part, a well-chosen advisor should serve you well.

No matter how you feel about what role the government should play when it comes to protecting consumers, ultimately, you alone are responsible for managing your money. Trusting your advisor is important, but the person you really need to trust is yourself. Keep in mind the definition of caveat emptor: “the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.” And remember, it’s your money. It’s your responsibility.

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Rising above the noise to find the truth (and a little bit of sanity)

Rising above the noise to find the truth (and a little bit of sanity)

“And if all others accepted the lie which the Party imposed—if all records told the same tale—then the lie passed into history and became truth. 'Who controls the past' ran the Party slogan, 'controls the future: who controls the present controls the past.’”

– George Orwell, 1984


I read a fascinating article in New York magazine about what happens when a lie hits your brain. It wasn’t new information—Harvard University psychologist Daniel Gilbert presented his findings more than 20 years ago—but it was new to me. And it just may be more important now than ever.

What Gilbert proposed was that our brains are forced to do some stunning acrobatics whenever we hear a lie. First, the lie is told. And when that happens, our brains have to accept that information as true to understand and make sense of it. That means that even if we know something is a lie, in that first critical moment, our brains tells us the information is true. Thankfully, we’re usually able to take the next step, which is to certify mentally whether the information is true—or not. According to Gilbert, the challenge is that the first step of mental processing is easy and effortless. The second? Not so much. It takes time and energy. Which means if we become distracted or overloaded, it’s all too easy for us to never take that second step. Suddenly, something we knew to be a lie begins to sound more and more reasonable. In fact, in a more recent study, researchers tested this hypothesis, asking people to repeat the phrase “The Atlantic Ocean is the largest ocean on Earth.” After repeating it enough times, the participants started to believe the statement to be true. Why? Their brains just took the easier route to closing the loop on processing new information. Scary, but true.

I’m embarrassed to say that I can think of too many examples in my own life when I’ve done the same thing. You probably can too. Every one of us is guilty. But in our defense, it’s not our fault. As humans, we all have a limit to our “cognitive load”—or how much our brains can process at one time. When we’re hit with a constant stream of information, our brains reach that limit, and we’re no longer able to take that important second step of mental certification. And, boy, is that cognitive load being challenged lately! Every day we’re inundated with noise on every topic. Television. Radio. Newspapers. Magazines. Facebook. Twitter. Every outlet is screaming for us to pay attention, and whether it’s the media or our friends flooding our brains with information, we’re spending an incredible amount of time trying to discern facts from “alternative truths.” The result: our brains are overloaded… and downright exhausted.

As an advisor, my mission is to help my clients rise above the noise to make careful, thoughtful financial decisions. In this environment, it isn’t easy! The media and everyone’s well-meaning friends are overflowing with information. Unfortunately, some of that information can be misleading. For example, the media has focused on the market indices for years. As a result, so do investors—even if they know that the fact that the Dow hit 20,000 yesterday has nothing to do with their long-term financial outlook. But for the media, this magic number is an easy target. They can report on it. They can speculate on it. They can create headline-grabbing sound bites about it. The result: a whole lot of noise that carries about as much importance as reporting on the path of a rollercoaster when all that matters (really!) is where the ride ends.

What’s the solution? We need to lessen our cognitive load. We need to slow down the noise, slow down our brains, and regain our mental strength. For me, that means turning off the television and the radio. I’m able to slow down and think more clearly when I read written information rather than listening to “talking heads.” This is true in finance and every aspect of my life. And when that doesn’t work? I meditate. (For more on how our brains can inhibit or ensure our own happiness, check out Daniel Gilbert’s bestseller, Stumbling on Happiness.)

Whenever I feel challenged by the noisy world around me, I remember Viktor Frankl’s famous quote: “Everything can be taken from a man but one thing: the last of human freedoms—to choose one’s attitude in any given circumstances, to choose one’s own way.” Perhaps by taking the time to slow down and rise above the noise, we can each make that choice and, indeed, choose our own way.


Comments? Please email me. I’d love to hear your thoughts!

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Money really can buy happiness!

Money really can buy happiness!

We’ve all heard it said a million times: money can’t buy happiness. Well, I’m here to tell you some great news! It seems money can buy happiness after all. There’s a catch, though. It doesn’t happen in the way you might think. But stop. Let me back up for a minute to share with you how all this started swimming around in my head, and why I can’t stop thinking about it.

Last weekend, I had some precious time to read, and I picked up Jonathan Clements’s book How to Think About Money. What drew me to the title wasn’t Clements himself, or even the fact that I’m always up for new ideas about money and finance. The attraction was the fact that William J. Bernstein wrote the foreword to the book, and I’m a big fan of his. (His book If You Can: How Millennials Can Get Rich Slowly is simply fantastic.) So I dove in, and I am absolutely thrilled I did. One of the reviews of the book called it “financial feng shui,” and I agree completely. The book includes five steps covering “how to think about money.” The first step covers (you guessed it) happiness. Specifically, how to buy more happiness. If you thought it wasn’t possible, Clements offers some valuable food for thought.

First, he points out that we simply aren’t very good at figuring out what will make us happy. That’s probably no news to anyone. So many of us live the majority of our lives doing work we don’t enjoy, commuting way too many hours of every day to get to that work, and then coming home exhausted to a home that costs us way too much time, energy, and money to afford and maintain. Clements recognized the conundrum, and he turned to research on happiness to put the pieces of the puzzle together. Here are just a handful of the things he learned from the academics:

  1. “Money can buy happiness, but not nearly as much as we imagine.” 
    All of us have purchases that make us happy, but how happy do they make us over the long term? Is buying the new car more exciting than how we feel driving it six months down the road (pun intended!)? And how dependent is our happiness on our own comparison of the “stuff” we own compared to our friends and neighbors? I may be thrilled with my new Hyundai…until I look around and see myself surrounded by BMWs and Mercedes. And yet, if my parents always drove older cars because they couldn’t afford new ones, I may feel thrilled to realize I’ve upped the ante, at least in this regard. Happiness is complicated! But ultimately it’s up to us to choose how we lead our lives—including how we live and, yes, how we spend our money.

  2. “We’re often happier when we have less choice, not more.” 
    Think about it: decisions are stressful! Even little things like deciding what to wear each morning can cause some stress. Bigger decisions—like where to live or which job to take—can keep us up at night and lead to some very real anxiety. I remember when I first read The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing by Marie Kondo, I was struck by just how much stuff I’d accumulated… and spent my hard-earned money on! When I started asking myself if all of these belongings really “sparked joy,” I was surprised at how little of them did. (For more thoughts on getting rid of all that stuff, read my blog It’s that time of year: change is on the horizon.) Ultimately, it’s not the stuff that brings us joy. There’s something much better that money can buy.

  3. “We place too high a value on possessions and not enough on experiences.” 
    So if our “stuff” doesn’t define us and make us happy, what does? Experiences. Specifically, experiences with family and friends. Interestlingly, anticipation is a big part of the equation. I know when I’m planning a vacation, the anticipation is half the joy! But even more, experiences create memories that become part of the fabric of who we are. At Christmas, I decided to take my whole family to see Disney’s wonderful new movie Moana. We all went together, sat in the big, comfy seats, munched on treats, and had a great time. Every one of us walked out of the theater happy and filled with memories that will last a very long time. Was it expensive? Yes! But no more than an Apple watch. And while my grandson may have been happy in the moment as he slipped a new watch on his wrist, I know this experience was much more worthwhile. It made us all truly happy.

That’s just the tip of the iceberg— just step one out of five—but I hope it’s enough to get your wheels turning and wondering “what really makes me happy?” Everyone wants and needs to have enough money to live. That’s a given. But how we spend that money really can buy us happiness, but only if we make careful, deliberate choices based on what will bring us happiness over the long term.

I must add that being able to make these choices in the first place requires achieving some level of wealth to begin with. As Clements writes in his introduction, “Growing wealthy is embarrassingly simple: We save as much as we reasonably can, take on debt cautiously, limit our exposure to major financial risks, and try not to be too clever with our investing.” And if that seems simple, but not easy, This email address is being protected from spambots. You need JavaScript enabled to view it. . As always, I’m here to help!

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Index

09 November 2016

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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 >