Stepping Off The Cliff
As I am writing this, the US equity markets appear poised to have a nice increase for the day. This, of course, is on the heels of a long string of down days that may have some of you convinced that financial Armageddon is upon us. I assure you that this is not the Armageddon!
However, it is impossible to know how the impending “fiscal cliff” will be averted and what shape a solution might take. It is vital we focus on a broader view than what may or may not occur over the next 30+ days. My personal opinion is that a compromise will be reached, however, that is nothing more than an opinion and as I have frequently reminded all of you, we don’t base our investment decisions on opinions. I’ve included a link to the 2008 video by David Booth (CEO of Dimensional Fund Advisors) that was produced in the midst of the market meltdown. It is a few years old but the relevance is unchanged. It is difficult to envision the current selloff approaching the magnitude of the 2008-2009 decline for the simple reason that we know what is occurring at this time and why investors are concerned. In 2008-2009, the causes of widespread illiquidity were largely hidden, which exacerbated fear in both the public and professional ranks. While there is clear concern out there, we know the origin of the problem, which was not the case in 2008-2009. Similar to the impending credit downgrades for US debt in 2010 and 2011, the problems are clear and understood by all parties.
As we ease into the holiday season, I have a few philosophical financial gifts to give you that I hope will help you focus more on the joy of the season and less on the noise in the financial press:
1. Nothing has occurred that impels a change in our investment philosophy. That philosophy centers on positioning investments to harvest market returns in various asset classes. The most effective means we have to ensure long term financial success is to remain invested in a broadly diversified portfolio with a level of expected volatility and risk appropriate for you. We are currently experiencing the downside of owning equities; the risk of loss. The lower prices travel, the greater the increase in expected returns. While this is not a pleasant journey, when negative returns appear it is doubly important to remain invested since the ultimate inflection point cannot be identified in advance. It was nearly inconceivable in early March 2009 that equity prices were on the verge of one of the strongest advances in history, yet it happened. Investors who made the tactical decision to try to avoid losses succeeded in missing one of the quickest and sharpest rebounds ever experienced in the equity markets. That advance and the subsequent years carried most portfolios to levels greater than they carried when the meltdown began.
2. While it may seem “obvious” that equity prices are destined to decline over the near term, it is equally impossible to know the extent and duration of that decline or whether it will even occur as envisioned by many in the financial press. Anxious investors who wish to avoid losses will simply be trading one set of anxieties for another. While experience suggests that investors who exit in similar situations rarely if ever re-enter the equity markets, those who do gather the courage to “get back in” will be faced with the new fear that every succeeding selloff, no matter how short, might be the beginning of another significant downturn. Owning equities carries the risk of loss, which is why the appropriate volatility in a portfolio is so important. Risk is equal to reward.
3. The goal of virtually every investor is to outlive their assets and to have their investments support them at some point in their lives. As we have often pointed out, the only effective means to accomplish these goals is to maintain exposure to equities. With returns on high-grade short term fixed income instruments and cash currently at real levels of less than zero, it is important to understand that inflation ticks away each and every day, increasing the cost of everything you need to live. Avoiding the risk of equities is a recipe for problems when assets are needed to support your lifestyle in retirement. Fixed income + rising costs = failure.
4. Staying the course in a falling market environment is difficult, especially if you’re convinced you see it coming. In 2008-2009 very few of our clients actually made tactical changes, which we believe is a testament to our consultative approach, proactive support and to our understanding of your risk tolerances (or perhaps you were hiding in your closet for two years). We have all already endured what is likely to be the most difficult period in the equity markets in many of our lives during the 2008-2009 period and it should remind us that declines don’t go to zero and at some point are finished. Selling out or reducing exposure significantly at a time when expected returns are rising (as prices decline) is not a viable investment strategy and raises the distinct possibility of being left behind when the inevitable recovery occurs.
I imagine that these “gifts” sound familiar to you. We regularly challenge our views and evaluate our process and through it all, our confidence in the viability of this philosophy remains intact. We recognize that these are unsettling times but also know that most of the troubling issues are things that we cannot control. The best and highest use of our time is to focus our efforts on those things that we can control and those things that matter most. We’re here to help you stay the course to achieve your goals and dreams. Please call anytime you have questions or would like to discuss them
From The Data Bank
.40 Is the correlation of the ratings you would give your own personality traits with how people close to you would rate your traits. Research shows other people’s assessments of your traits are more accurate than your own. (HBR Blog Network)
3 or fewer Is the number of years one needs to live in a home to reach the break-even point where ownership makes more financial sense than renting, in three-quarters of U.S. cities (based on costs such as the mortgage payment, down payment, rent, transaction costs, taxes, etc.). (CNN Money, Zillow)
28 Is the percent of small-business owners who expect they will see increased revenue in 2012, as of mid-year; 45 percent of small-business owners under age 44 believe so. (Western Union)
34 Is the percent of household financial decision makers who expect to retire before age 65, compared to 50 percent who expected the same in 1997. (Consumer Federation of America and CFP Board)
42 Is the percent of Americans who have a will, down from 47 percent in 2000. (Tiburon)
“No kind action ever stops with itself. One kind action leads to another. Good example is followed. A single act of kindness throws out roots in all directions, and the roots spring up and make new trees. The greatest work that kindness does to others is that it makes them kind themselves.”
American Aviation Pioneer and Author
Don’t Let Cremation Leave You Ashen
A friend described scattering his brother’s ashes from a footbridge into a stream in the Beaver’s Bend area of Oklahoma. It was one of his brother’s favorite spots and a number of family members gathered there.
But just as they began gently sifting the ashes into the stream, other park visitors came along. And the solemn moment dissolved into a slapstick affair of nervous pokes, panicked whispers and one quick whoosh of ashes into the stream. The family members all spun around from the bridge rail and feigned complete ignorance of the big white cloud in the slow-moving water.
Not exactly what they were looking for in the way of farewells.
In the last year, I heard not one but two stories of people carrying ashes all the way to Paris to fulfill dying wishes of being scattered there. And in both cases, the overriding emotion was stark fear that the gendarmes would swoop in at any moment. Those billboards touting budget cremations give another hint of how much the funeral business is changing. They advertise the services of Jim’s Funeral Home.
Jim??? That sounds more like a place to get your tires rotated than to meet the sweet hereafter. “I know, I know,” proprietor Jim Sanders told me. Before I opened, I started thinking of all the usual-type names I could use. But none of them sounded like me,” he said. He describes himself as “a country boy from Oak Cliff.” So Jim’s it is. And his Hurst, TX-based funeral home caters to baby boomers that prefer frugal cremations over fancy caskets.
Not long ago, cremation was almost unheard of in these parts. Now it’s chosen in about 40 percent of deaths nationally and should cross into the majority in just five years, according to the Cremation Association of North America.
As for scattering all those ashes, the unofficial advice seems to be: Don’t ask, don’t tell. Or as Nike says: Just do it.
Sanders said he has never heard of anyone being fined or arrested for scattering ashes. And an online search of news stories around the country revealed no such cases. But still, who wants to feel like a sneak while saying goodbye to a loved one?
The good news is that there is no need for worry in California. State law here is clear: Once you get a permit, you can scatter cremated ashes over any uninhabited public land, into any public waterway or sea, or any private property where the owner has given permission. So apparently any park is fine. Just be cautious about picnickers and prevailing winds.
Sanders said the surprising thing is how many families never come back to pick up the ashes at all. He ends up scattering those himself. “My wife and I are RV’ers, so we just take ’em out on the nature trail in some state park,” he said. “At least it seems peaceful.”
He had one fellow with cancer who arranged his own cremation. “He asked that his ashes be scattered nearby here at North East Mall [in Hurst]. “I said, ‘The mall?’ And he said, ‘Yeah, I’ve got four grown daughters living here. I figure two or three of them will visit me every day.'”
So on a windy night, outside their favorite entrance, they sent Daddy flying.
Special thanks to Steve Blow for sharing this.
“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.”
Global Renaissance Woman, Author, Poet
CHOC Walk in the Park 2012 Recap – Thanks to the generous support towards the 2012 CHOC Walk in the Park event, our Inspired Financial team was able to surpass our $2,000 goal to support the Children’s Hospital of Orange County. Our collective efforts totaled just over $2,400 and the entire event raised over $1.8 million dollars! We had 15 brave walkers from our inaugural team that strolled through Disney’s California Adventure and Disneyland. A good time was had by all and we truly appreciate your help in raising money for this great cause!
After months of intense studying, Kevin took the CFP® exam in November and anxiously awaits the results.
Beth and her daughter, Monica, are back from their trip to Israel. They were there for the grand opening of the Sarah Wetsman Tower at Hadassah Hospital in Jerusalem and celebrated Hadassah’s Centennial.
Evelyn and Mark are almost finished renovating their new home. They are excited to finally move in later this month. They’ve also been busy on the speaker circuit with Mark presenting at The National Association of Personal Financial Advisors (NAPFA) West conference. The session was called “Post-Death Planning: What You Need to Know & How You Can Help Your Client.”
Evelyn was a featured panelist at the WISE® (Women Investing in Security and Education) event in October at The Center Club. The session was called “How to Invest, Prosper and Sleep Well in Volatile Markets.” She also was recognized as the 2012 Volunteer of the Year for the Financial Planning Association Orange County Chapter.
She’s quite passionate about our profession and after two years of negotiating and persistence, Evelyn was able to get all of the 13 California Financial Planning Association chapters (with 3,073 members) in agreement to have a state-wide FPA of California chapter to serve as a unified voice to our state government regarding matters that affect our profession and the clients that we serve. Not only was Evelyn the co-organizer in the creation of this important chapter, she will also be the first president during its 2013 inaugural year.
Your Team at Inspired Financial
Note: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategy may be appropriate for you, consult with your attorney, accountant, financial advisor, or tax advisor prior to investing or taking action.