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Trumped

Trumped

For me—a woman, a feminist, a liberal, a democrat—what happened on Tuesday night was more than unexpected. No matter how you voted (and note that only about 50% of Americans exercised their right to vote), the results stunned the world. An ABC reporter said it was the “biggest upset in 100 years.” Others have likened the outcome to the Brexit surprise in England.My take is that Trump showed us that humans are still driven by animal spirits, and when those animal spirits are roused, they are easily riled. When people are persuaded to fear for their personal safety, they leave sanity behind.

So here we are. And while there are many (many!) questions in our future, the most pressing question that many of you have asked is: what’s next?

From a market perspective, it’s likely the situation will mirror what followed England’s Brexit vote. The markets do not like surprises, which is why the Dow Futures were down 800 points once it was clear Trump was going to win the election.So it was even more surprising that US Equity prices were relatively flat this morning, and even closed slightly higher by the end of the day. Perhaps the market will remain positive, but a Trump Presidency has the whole world concerned about the immediate future of the world’s most significant economic, military, and moral power. This uncertainty may create volatility in the US and global markets. Volatility is something to be mentally prepared for, but (and here’s the good news) it’s not a situation that requires tactical changes to your portfolio. Here’s why:

1. Our portfolios are constructed based on academic evidence and economic fundamentals.
While a change in our country’s administration can feel overwhelming, the foundational elements of your investment strategy have not changed. The US has been in a slow and steady recovery from the Great Recession, and despite the rhetoric of the election, our economic fundamentals are stronger than they’ve been in years. Also, while presidential elections do add a layer of uncertainty—and the markets don't like uncertainty—they historically don't have a long-term effect on market performance. Over time, money will find value, and that is unlikely to change. Now is the time to trust the fundamentals.

2. In times of volatility, deserting the market is the worst possible financial decision.
While there’s not even a hint of a market crash at the moment, take a moment to think back to 2008. We all know someone who panicked and pulled assets out of the market and went to cash. Those who did are still trying to recover. Many never will. Those who stayed calm and trusted the market are on stronger financial ground than before the market plummeted. Stay calm. Don’t react to headlines. And trust your strategy.

3. Our government remains the best government in the history of the world.
Don’t misunderstand me; as a feminist, I am utterly disappointed that Hillary Clinton—a women who is highly qualified and supported by the most respected and well informed Americans—just lost an election to a man who I and many others believe lacks the qualification, temperament, and moral fiber to be President. However, while the US government is not perfect, it is carefully designed with checks and balances to prevent swift and undesirable change. Even if Trump wants to fulfill some of his most volatile campaign promises, we must trust that those checks and balances will prevent damaging change and, ideally, sustain recent progress in civil rights, environmental protections, and fiscal responsibility.

When President Obama addressed the nation this morning, he was as eloquent and elegant in his message as always. He said, “Even if we lose, we still move forward.” I have to believe that. Despite our differences, let us all keep moving forward with strength, hope, and tenacity. In our personal relationships, our political ambitions, and our financial lives.

Hillary said it well in her concession speech. “Our campaign was never about one person, or even one election. It was about the country we love and building an America that is hopeful, inclusive, and big-hearted.” That’s the message that will keep me focused on the future. Because, as President Obama stressed in his speech, “The sun will come up in the morning.” It did. It will. And we too shall shine.

If you’re concerned about the results of the election and how it may impact the markets, your investments, and your future, let’s talk. As always, I’m here to help.

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Leonard Cohen: Lessons from a master in the art of aging

Leonard Cohen: Lessons from a master in the art of aging

It seems the Nobel judges and I have a bit in common. I’ve always viewed certain musicians as master poets. At the top of my list of lifelong favorites: Kris Kristofferson, Bob Dylan and, of course, the inimitable Leonard Cohen. Bob Dylan recently grabbed many headlines with the announcement that he was awarded the Nobel Prize in Literature this year “for having created new poetic expressions within the great American song tradition.” (As of this writing, Dylan has still not responded to the Nobel Academy to acknowledge the honor.) At the same time, Dylan’s slightly older friend and musical peer Leonard Cohen has been making headlines of his own. At age 82, when most people of his generation are happy simply to have time to relax, Cohen is doing anything but settling down. Last week he released a new album, “You Want It Darker,” and in typical Cohen fashion, he hasn’t shied away from topics many choose to avoid. In the title track, he declares “Hineni, I’m ready, my Lord.” When asked recently if he was truly ready to die, his reply was this: “I may have exaggerated.” Classic.

In a recent interview in The New Yorker, Cohen discussed aging, and what it means to him on a very personal level:

“At a certain point, if you still have your marbles and are not faced with serious financial challenges, you have a chance to put your house in order. It’s a cliché, but it’s underestimated as an analgesic on all levels. Putting your house in order, if you can do it, is one of the most comforting activities and the benefits of it are incalculable.”

As is often the case, I agree wholeheartedly with the man. Aging is a great gift, and if we take the steps needed to “put our house in order,” we can appreciate our later years even more. Perhaps even ease oh-so-slowly into that moment when we are, in fact, ready to die. What does it mean exactly to put your house in order? As a financial planner, my mind immediately goes to money. If you plan well enough that you don’t have financial challenges when you’re older, you can free your mind up for the rest of the equation. (For more on planning for the financial burdens ahead, read my blog, Aging: 4 steps to walking a smoother path toward the inevitable.)

Money isn’t the only factor in that critical equation. Many believe essential work—something that engages your mind, your spirit, and even your soul—is vital. Cohen is an amazing example of someone who has continued to produce essential work as long as possible. Perhaps the lack of distractions in old age has helped him be so prolific. He says that, compared to other times in his life, the lack of distraction “enables me to work with a little more concentration and continuity than when I had duties of making a living, being a husband, being a father… the only thing that mitigates against full production is just the condition of my body.”

If Cohen is any example, it seems that putting your house in order also includes deciding what you want to achieve in your last decade or two of life, and how to make it happen. We often think of artists as being the tortured ones—they struggle for years to achieve their goals, and even then they’re often not appreciated for the result. But Cohen has a passion that has kept his mind and his soul engaged his entire life. For the rest of us, it may take some introspection to discover what we want now that we finally have the time to achieve something new.

My good friend Sue Alpert discovered her own “second half of life” passion after she became a widow. Following her own experience, she dedicated her life to helping others prepare for the death of a spouse or other loved one. Her mission is to help others reduce the chaos that can swallow a new widow or widower whole by encouraging people to prepare for the business of loss. (You can take her quiz here to see how prepared you are for loss, and learn the proactive steps you can take to tackle important planning and organization before it’s too late.)

If you don’t have your financial house in order, now is the time to talk to a financial advisor and make it happen. And if you’re struggling to identify your own essential work—what you want and need to achieve in your second half of life—I recommend looking at the Halftime Institute, a program designed to help pursue significance later in life. Marc Freedman’s book, “Encore: Finding Work that Matters in the Second Half of Life,” is another inspiring resource. (To learn more about Marc Freedman and Encore, see my blog Inspirations: Finding Purpose in Your second Half of Life.) If you find what you’re seeking, I’d love to hear your story.

Leonard Cohen remains one of my heroes. I’ve already downloaded the new album on iTunes and I can’t wait to listen to every word. As for the new Nobel Laureate, Bob Dylan, he’s practically a youngster at 75. Time will tell how much this other great poet may teach us about aging in the years to come.

Not sure your financial house is in order?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help.

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Yom Kippur, forgiveness, and the joy of letting go

Yom Kippur, forgiveness, and the joy of letting go

As I write this, the sun is setting, Yom Kippur is about to begin, and I’m struck by the sheer joy of letting go. Forgiveness and self-compassion are powerful things, and it seems there’s been so much negativity in the world lately—particularly around the upcoming election—that it feels wonderful to be wrapped in a greater sense of peace.

I’ve been seeking a lot of that lately. I mentioned in my last blog that I’ve joined a Sangha meditation group that meets on Tuesday nights, so I’ll miss that tonight as I celebrate Yom Kippur. I just received this note from the woman who leads the group:

We will miss you tonight in our meditation group, but I wanted to extend to you the wish that you receive the forgiveness that is in your heart as sunset arrives. You and I spoke about the meaning of Rosh Hashanah and Yom Kippur when we met last. Meeting a New Year with atonement for the faults of the past year is both a cathartic and compassionate practice.

Her words mean a lot to me for two reasons. First, sharing my Jewish beliefs with her made me realize how all faiths share the same sentiment. Judaism has created a ritual of forgiveness in the Days of Atonement. The Christian faith includes a personal, forgiving relationship with God. And Buddhism’s ideas of Zen and Karma are rooted in the same idea: that we must love ourselves first before we can expand that love to others.

As a financial advisor, I’ve found that I have to take this idea very much to heart—especially before sitting down with a client. Not only do I have to be at peace with myself to provide the best possible care and service to the person in front of me, but I also have to be at peace with the world around me—including the financial market. That peace of heart and mind allows me, and hopefully my clients as well, to rest emotionally. And I believe this is the only way to make wise decisions about money, investing and, ultimately, life.

Back in August, I read Carl Richards’ New York Times blog titled The Cost of Holding On. It opens with this story from Jon Muth’s book “Zen Shorts”:

Two traveling monks reached a town where there was a young woman waiting to step out of her sedan chair. The rains had made deep puddles and she couldn’t step across without spoiling her silken robes. She stood there, looking very cross and impatient. She was scolding her attendants. They had nowhere to place the packages they held for her, so they couldn’t help her across the puddle.

The younger monk noticed the woman, said nothing, and walked by. The older monk quickly picked her up and put her on his back, transported her across the water, and put her down on the other side. She didn’t thank the older monk; she just shoved him out of the way and departed.

As they continued on their way, the young monk was brooding and preoccupied. After several hours, unable to hold his silence, he spoke out. “That woman back there was very selfish and rude, but you picked her up on your back and carried her! Then, she didn’t even thank you!”

“I set the woman down hours ago,” the older monk replied. “Why are you still carrying her?”

How many of us spend our energy and precious resources carrying around problems from the past? And how often does that impact the decisions we make moving forward? We’ve all seen it in our own lives. A friend who is afraid to love again after a nasty divorce. A colleague who pulled out of the market and lost his savings during the recession and is too scared to invest again. Another who can’t forgive an adult child and is ripping her family apart at the seams. All because they’re carrying on to old pains, old fears, and old burdens.

We’re all human, which means we all have faults. Yom Kippur—whether you’re Jewish or not—is a perfect time to accept our humanity, accept our faults, and forgive ourselves as well as others. We may always be thinking about the past and the future, but by making a choice to live in the moment as much as possible, I hope we can all find joy in letting go.

Need guidance to help let go of old financial burdens? Let’s schedule a time to chat. As always, I’m here to help.

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Riding the surge: a diver’s approach to managing expectations

Riding the surge: a diver’s approach to managing expectations

The older I get, the more I realize what a powerful impact my expectations—or lack thereof—can have on my state of mind. Last weekend was a great example. A friend and I had scheduled a dive trip on a boat called “Truth” (no, I am not making this up. Our destination: San Miguel Island, just off the coast of Santa Barbara. However, when we booked the trip, we were told quite plainly that 1 out of 3 trips to the island are rerouted to other nearby islands due to weather. Luckily, the Channel Islands (of which San Miguel is one) include more than a handful of other beautiful spots, so when we went to Santa Rosa and Santa Cruz instead, there was peaceful acceptance—not disappointment. I wasn’t attached to the idea of getting to San Miguel; I had no unmet expectations. “Truth” delivered on its only promise: to take us somewhere we’d never been. We had a fantastic experience. But I have to wonder... would I have enjoyed it less if I’d had my heart set on seeing San Miguel?

It’s possible that my insight has less to do with getting older and more to do with what I’ve been learning in my Sangha group, a study of Buddhist thinking where we’re working on discovering compassion and happiness by training our minds to shift the focus from ourselves to others. Perhaps my newfound interest in Zen has already given me a whole new perspective on the difficulty of expectations—in life, in relationships and, yes, in investing.

As I’m sure you heard, the Fed met last week to decide whether or not to raise interest rates. What I found most interesting about the meeting wasn’t the actual decision to keep rates where they are (it was a given that the Fed would either raise rates just a quarter percent or stay put), but the market’s response both pre- and post-announcement. How did the market react? It didn’t. Sure, there were some small fluctuations in the market in the days leading up to the meeting, but nothing like we’ve seen recently when investors were anticipating a rate hike. I believe the reason for that relative calm was the lack of expectations. There were no surprises, so the waters were calm.

Unfortunately, in situations when our expectations aren’t aligned with reality, even the littlest changes can often feel like quite a storm.

Before my dive weekend, I met with my client Laura. She was facing a financial decision: Now in charge of her aging parents’ finances, she asked me for help deciding if she should continue to pay premiums on her father’s life insurance using the policy’s cash value or pull out the cash to reinvest the money elsewhere.Her father is 88, and the death benefit of the policy is $1.5M. I did the math and recommended she maintain the insurance policy, but her expectations told her otherwise. First, she stated that she expects her father to live to the ripe old age of 102. If he does, she would need to pay the policy premiums, and some of the cost would not be covered by the available cash value of the policy. Second, she said she expected she could earn at least 8-9% on the reinvested assets, which would exceed the $1.5M payout in 10+ years. Were her expectations of dad’s life and investment returns realistic?  Probably not. With different expectations, the decision would have been different.

Years ago, I had a client with the opposite expectation. Allen was 45 years old when we sat down to build his retirement plan. As part of the process, we decided to work from the assumption that he would live to be 87. We spent the next two hours putting together a solid, long-term plan that included some needed catch-up contributions to his IRA. All the pieces were in place, and we were both happy with the final plan. But 10 minutes after he left my office, my phone rang. Allen had changed his mind. “Can you refigure the numbers? I’m pretty sure I’m only going to live to be 78.”

Of course, longevity isn’t the only expectation that can steer us in the wrong direction—or rock our boat when expectations are unmet. If I go to Vegas expecting to spend $250 of my “fun money” at the casino, I’ll still be smiling when it’s gone. And if I happen to win $50 or $100, I’ll be overjoyed. Why? Because my expectations were exceeded. In contrast, if I bought a house in 2006 for $650K expecting to sell it at a profit in a few years, I would have been devastated to see its value drop to just $450K by 2012. My perspective in both cases is rooted in my expectation of the outcome.

Expectations turn up everywhere. Investing. Relationships. Life. In diving, there’s a phenomenon called a “surge.” If you’ve spent any time in the ocean, you’ve probably felt it yourself: when the waves hit the rocks, the energy creates back and forth movement in the water. If you’re swimming, that force can push you away from where you want to go. Experienced divers know that fighting the surge is impossible, and if you try, you’ll end up wasting valuable energy. But if you ride the surge—relaxing with it when it pushes back, and then swimming with it when it propels you forward—it can be a beautiful thing. You may feel like a tempest-tossed, but you’ll eventually end up right where you want to be. How liberating.

When it comes investing, managing your expectations is key to keeping your emotions at bay when the market or your financial situation fluctuates, and it’s vital to staying on track toward your long-term goals. The best way to do that: have a plan based on research and knowledge—not just your gut—so you can trust that “riding the surge” will, ultimately, get you where you want to be. And if you find it difficult to set a course and free yourself from expectations, we can chat. As always, I’m here to help.

P.S.
Speaking of expectations: Did you happen to see Stephen Colbert’s commentary about the lopsided expectations for Monday night’s presidential debate? In his words, the expectations were that Hillary had to be “confident but not smug, knowledgeable without being a know-it-all, charming but not affected, commanding but not shrill, also likable, warm, authoritative—and not coughing. Meanwhile, Donald Trump had to not commit murder…on camera.” Oh my. Here’s the clip if you’d like to bring a little levity to the less-than-light quandary we’re facing on November 8!

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Market volatility making you crazy? 5 tips to managing your emotions

Market volatility making you crazy? 5 tips to managing your emotions

I like to say that if my clients are worried when the market does somersaults, then I’m not doing my job. And yet, I know that no matter how much I talk about prudent portfolio risk and why our focus on the long-term mitigates the impact of short-term market fluctuations, it can be a challenge to turn off that voice in your head that starts making noise when the market dips. The nagging questions can persist. How will this affect my income? Should I be making any adjustments? Will I really have enough to retire or take care of myself?

While those questions may always rear their ugly heads when the market is in the red, here are 5 tips to help you stay on top of your emotions—and on track toward financial success:

1.     Admit you’re human
In fact, embrace it! Why? As humans, we are never (ever!) free of emotions. That means that the majority of our decisions—as much as 90%—are based on our reactions to events and, yes, our emotions. Which also means that a measly 10% of our decisions are based on technical realities. If you can accept your humanity and realize that emotions play a huge role in everything we do, then you just might be ready to be an investor. (For more on juggling being human with the rollercoaster ride of investing, take a look at my blog Finance and feelings: Navigating life’s twists and turns.)

2.     Get clarity about your personal values and goals
Since emotions drive our actions, it’s important to realize that each one of us has “money scripts”—absolute truths that seem to have come from our mother’s milk and that dictate how we think about money. We’re taught to be generous… or thrifty… or that “charity begins at home.” We’re given rules like “tithing is required” or “the children come first” or “children should stand on their own two feet.” We’re told that our “net worth” is our “real worth.” (For more on this topic, see my blog Money Rules.) But in the real world, these learned truths may not be so true after all.

Look carefully at your values and goals, and understand your personal truth. Throw out anything that doesn’t fit your reality. Define your personal values and goals, and then determine how much money you need to support them. Start with how much you need for the basics—food, clothing, shelter, medical—today and in the future, and then decide how you want to use the excess. What’s most important to you? Consider things like funding your grandchildren’s education, traveling, starting a business, supporting a cause, or leaving a family legacy. The options are limitless, and they’re highly individual.

3.     Be humble
There’s an Old English proverb that says it well: Enough is as good as a feast. When it comes to investing, your ultimate goal should be simple: save enough to support your goals. Remember, when investing, average is good. If your goal is to beat the market, you’re bound to assume an unwise amount of risk. A more humble approach is to trust the rules of investing, carefully balance risk and return, and set a goal of accumulating  enough assets to support your life. You may not experience the “thrill of victory,” but you’re also much less likely to suffer the “agony of defeat.”

4.     Get help
Getting the help of an objective third party can help remove the emotion from investing and support smarter, more rational decisions. My clients Doug and Marie used to have terrible arguments about money. They had very different values and goals, and that disconnect created highly emotional conflicts. When we started working together, I asked them each to write down their feelings about money, as well as their values and goals. Now, even if they don’t agree, they at least understand each other’s perspective. And when they do disagree—or their emotions start to override smart financial decision-making—they “just call Lauren.” 

5.     Stay true to your goals
Judy had been retired for just over five years when the market crashed back in 2008. It was a dramatic time when many investors were letting their emotions dictate their decisions. Pundits posited that the market would never be the same and that staying put would be a sure path to financial ruin. Judy watched friends pull everything they had out of the market and put their assets into “safe” places—short-term CDs, bonds, and even savings accounts. They all said they’d “get back in” when and if the market recovered. Judy knew her plan was sound; she knew her goals, and she stayed invested.

It took a while, but the market recovered. In the past two months, it’s set new record highs, with the Dow jumping past 18,000. As a result, when we reviewed Judy’s portfolio last week, she was thrilled to realize that she has almost the same amount in her account as the day she retired over 12 years ago. That’s the strength of the market. That’s the power of long-term investing.

When you have a solid plan in place that’s designed to support your values and goals, short-term shifts in the market don’t have the power to deliver financial catastrophe. In fact, if you’re still contributing to your savings, market dips will help your long-term outcome by giving you an opportunity to buy more for less. Even when you’re in the distribution phase, we design your portfolio to insulate you from volatility. And if you start to doubt yourself? Go back to step one and remember: you’re human. Then review your values and goals, and trust that you’re on track to have enough to live the life you were meant to live.

Need help building—or sticking to—a solid, long-term investment approach? This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a time to chat. As always, I’m here to help!

[Photo credit: Daniel Ito]

 

 

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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 >