Ideas from Today

Current Valuation Concerns - Context

US vs. Int'l vs. EM

Articles of Interest - 1/18/2016

http://www.361capital.com/weekly-briefings/risks-keep-rising/


http://www.361capital.com/wp-content/uploads/2015/04/361-Capital_MAB_UtilizingManagedFuturesStrategies.pdf

Dumb Investing Ideas

Excerpts from Barry Ritholtz's Washington Post Article of July 5th.  I mainly post this to show an affirming opinion to my views and things I have seen in client accounts before they move over to me.
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Mutual funds held at the mutual fund company. This head-scratcher is hard to understand. For some unfathomable reason, people hold mutual funds at the underwriting company instead of at any ordinary brokerage account. Of course, these are the “A Shares,” with commissions typically approaching 5.75 percent (or higher).

This is an insane amount of money to pay for a mutual fund when you can shop around and probably find a very similar fund for 80 percent less. Or find the rough equivalent in an ETF index fund with a 0.15 percent expense ratio, and pay $8 to buy it.

It amazes me that it’s 2014 and we are still discussing A-shares.

Apparently ethics are still an optional aspect of parts of the finance industry.

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Tax-deferred products sold in IRAs and 401(k)s. An entire universe of investments has one purpose: to provide a return without generating a taxable event. Think municipal bonds (or municipal bond mutual funds), or insurance products such as annuities or whole life insurance.

All of these products are priced to generate an equivalent after-tax basis return. In other words, you get less in terms of yield, but on balance can come out ahead. Putting these products into tax-deferred accounts defeats their reason for existing, and instead creates an investment that is built to underperform.

I don’t know how this happens, but it does.

Investment Advisors: Show your numbers

Zweig: Advisors need to show their numbers

I have a pretty strong opinion on this article.  At face value and in spirit, I totally agree that advisors should show their portfolio performance.

The letter of the law really prevents us from doing that.  It is an incredibly diffcult challenge to take in account all the different factors - fund flows, taxes, dividends, fees, etc.  Regulators are very strict in this arena - as they should be and therefore, many choose to not showcase performance.

Here is how I do it for individual clients that are with me.  I show the client's return NET OF FEES and I include how the Russell 3000, Aggregate Bond Index, Global Market Index, and International Market Index.

Then, on a weighted average the client can determine how he did vs. the benchmark.

Example:  If a client trailed their benchmark by .10%, but they know their total fees were 0.30%, then they can see they outperformed the benchmark by 0.20%.  Conversely, if they trailed the benchmark by 0.50% net of fees, they know their investments trailed the benchmark before fees by 0.20%.  Of course, this is pre-tax.

0.20% over a quarter is simply ambient noise.  However, if an advisor shows their results GROSS OF FEES, he is inflating his numbers because that isn't what the client actually experienced.

The other thing you have to consider is (1) The intangibles that an advisor offers, (2) the tax impact.

Your Essential Life

In our last post, we discussed the concept of Essential Wealth.

Now, your Essential Wealth is an enabler to your Essential Life.

What is your Essential Life?  It is Your Health, Your Career, and Your Calling.  It is your lifestyle.

Your Essential Life has several factors that we have various degrees of control over.

Take Life Span for instance. There are genetic elements of our life span that we don't control, but eating a proper diet and exercising regularly and making good choices regarding smoking and alcohol consumption will lead to a longer life.

Earnings has several elements that influence it.

The bottom line is that you take advantage of what you do have control over and make the most out of what you want to do with the resources you have available.  For some, that may mean a sabbatical or going on a mission and bypassing income in the short-term.  For others, it involves the risk of starting your own business or caring for an aging parent or special needs child.  In any case, if we can take care of your health, allow you to keep learning and growing in your career, and position you for whatever your calling is whenever it shows up, that you can do that through your enablement with Essential Wealth and an Essential Portfolio.

Now that we have set the table, we will begin dissecting the make-up of an essential portfolio.

Defining Essential Wealth

There are many things in life that is easier for me to explain and understand using an equation.

One of my favorites is:

Perception - Reality = Lack of communication

The definition of Essential Wealth offers us that as well and it is at a level that transcends your unique definition of wealth.

Essential Wealth = Time x Money x Experiences x Relationships

If any of these factors equals 0, then you likely don't have Essential Wealth.  To build and maximize Essential Wealth,  it is important to understand the trade offs among these factors.  For example, if you are so busy working that you don't have as much as you like doing things with your family, your Essential Wealth is likely not at its peak value.

What I like to do with my clients is understand what the "peak" value is for each of these factors.  Time may be going part-time or retiring at a certain age to maximize the other factors.  Experiences could be taking your kids and grandkids on a cruise, or it may be buying a lake house.

Money is the vehicle that will deliver on time and experiences.  The emotion that comes with money typically lead to negative views - worry, regret, greed,  and fear - to name some.  While money is important, it is also important how money will contribute the most to your Essential Wealth.

When we understand how we can define and maximize Essential Wealth, it allows us to define our Essential Life and build an Essential Portfolio.  We will write about those factors next.

The Essential Portfolio is an Essential Building Block

Recently, I have finished reading Essentialism:  The Disciplined Pursuit of Less.  I highly recommend it.


The story is one that easily transcends into my world of wealth management and a story I will be sharing over the coming days.

Your Essential Portfolio is necessary for you to have Essential Wealth for your family and for you to have an essential life.

The Essential Portfolio focuses on four things:  Behavior, Expense, Risk, and Taxes.  We will go in depth on all four.

Essential Wealth examines the trade-offs among time, money, and experiences.  We will analyze all 3 and their relationship with one another.  Probably more importantly, is how time, money, and experiences are invested and maximized with people that matter in relationships that matter.

Your Essential Life is about your career, your health, and your calling.  Some of these life events we can control and create the path - sometimes a path will be created for us.  We will look at this.

Then, we will show how the Essential Portfolio, Essential Wealth, and Essential Life build upon each other.

Finally, we will compare the ingredients to an Essential Portfolio and a Non-Essential Portfolio.



I look forward to sharing this with you over the coming days.